DZ HYP Real Estate Market Germany 2018 Final

Eine
A research
Fachthemenreihe
publication der
by DZ
DZHYP
HYP| |Oktober
Oktober2018
2018
REAL ESTATE
MARKET GERMANY
2018 | 2019
Strong demand drives up residential
and office rents in metropolitan areas
dzhyp.de
Real Estate Market Germany 1
2018 | 2019
TABLE OF CONTENTS
02 Preface
03 Summary
06 Current economic climate in Germany
07 Coworking – A fad or a model for success?
10 Will rental yields also pick up again when interest rates rise?
12 Retail properties
26 Office space
41 Housing market
46 Forecasts at a glance
47 Imprint
51 DZ HYP offices
2 Real Estate Market Germany
2018 | 2019
PREFACE
Dear readers,
As one of the leading commercial real estate banks in Germany, DZ HYP regularly
analyses the markets it actively covers, in order to better assess opportunities and
risks. This year, the eleventh edition of the German real estate market study focuses
on real estate market developments concerning retail, office and residential
buildings at Germany’s top locations – namely Hamburg, Berlin, Dusseldorf,
Cologne, Frankfurt, Stuttgart and Munich.
As a whole, these real estate markets continue to benefit from the positive eco-
nomic environment in Germany. The trend of high demand on office markets is
continuing, supported by favourable labour market data – at the same time, there
is an increasing shortage of floor space. Therefore we expect an increase, albeit on
a moderate level, of the most expensive rents for all top locations during the current
and the next year. The same applies to residential investment markets [at the top
locations mentioned], where population growth is outstripping building comple-
tion figures. Despite accelerating housing construction, no relief to this pressure is
in sight. Hence, the boost in rent levels is likely to continue throughout the forecast
period. City-centre retailers, in contrast, are increasingly feeling the pressure of
online competition, leading to reluctant demand for floor space. We reckon top
rents within this segment, which have been stagnating since 2015, will remain on
the same level until year-end 2019.
The study presents a detailed discussion of the increasingly sought-after co-working

model – a market that especially capitalises upon the shortage of office floor space.
The range of flexible labour market solutions is vast, providing numerous possibili-
ties for several sectors – not just the start-ups and freelancers.
The German real estate market study is of course also available in German. All
current reports can be downloaded from our website; feel free to contact us if you
prefer a hard copy.
Yours sincerely,
DZ HYP
October 2018
2018 | 2019
SUMMARY
» Economic conditions for the commercial real estate markets in the seven top This eleventh edition of our market
German locations of Berlin, Cologne, Dusseldorf, Frankfurt, Hamburg, Munich report shows growth for office and
and Stuttgart could scarcely be any better. However, trends vary, as was the case residential properties, but subdued
last year. We discuss this in the current, eleventh edition of our annual market sentiment for retail
report which analyses the retail, office and residential segments.
» Conditions remain buoyant in the two sub-markets of office and residential. High
demand, combined with a shortage of supply, are driving up rents here again.
However, the picture is different for prime high street locations in the retail sector,
which have long been the driver for the commercial real estate market. Increasing
tough competition from the emergent online shopping segment has visibly
dampened demand for sales space from retailers. Prime rents, which have risen
to peak levels in the retail sector since 2013, are therefore stagnating.
» The fact that e-commerce has not yet hit the retail sector even harder is partly due
to the economic trend, which has cooled slightly as a result of international
problems, but which essentially remains healthy. The ninth year of the upturn is
leading to record employment, lower levels of unemployment than for decades,
and growth in wages and pensions. The seven major cities we have reviewed are
also expanding, and are benefiting from demographic growth, higher levels of
employment, and large numbers of tourists. Customer potential in the retail sector
is increasing here, as are the number of office jobs needed and housing demand.
» Thanks to the favourable economic climate and continuing very low interest rates,
investor demand for commercial real estate remains high. There is a good chance
that investment volume will be as high in 2018 as in the three previous years.
However, further growth is unlikely given the continuing shortage of core proper-
ties. Investors are therefore increasingly compromising in terms of location and
property quality. The decline in yields for new rentals has nevertheless slowed at
the level reached, which in some cases is less than 3 per cent annually.
TOP LOCATIONS: HOME AND OFFICE RENTS CONTINUE TO RISE, BUT RETAIL STILL STAGNATING
RENTS COMPARED TO PREVIOUS YEAR IN % (TOP LOCATIONS)
15
12
9
6
3
0
-3
-6
-9
-12
-15
199 3
199 4
199 5
199 6
199 7
199 8
199 9
200 0
200 1
200 2
200 3
200 4
200 5
200 6
200 7
200 8
200 9
201 0
201 1
201 2
201 3
201 4
201 5
201 6
201 7
201 8e
201 9e
reta il prim e ren t offi ce prim e ren t resi den ti al average ren t fi rst l etti ng average
Source: BulwienGesa, DZ BANK Research forecast

2018 | 2019
Retail – rents stagnate after prolonged boom

» There are increasing signs that sentiment for city centre retail is deteriorating. As Retail: online shopping is also
of the end of August, the merger of Karstadt and Kaufhof, which has been under capping rent growth in emergent
discussion for many years, is clearly close to completion. Despite buoyant top locations
economic conditions, the number of insolvencies in the retail sector is growing.
And planned retail developments, such as the expansion of the HessenCenter in
Frankfurt, are now being cancelled. Instead, considerable sums are being spent
on the refurbishment of many shopping centres in order to continue to attract
customers.
» Retail activity close to city centres remains very buoyant in the seven top locations
thanks to the growing number of potential customers. Contributory factors here
are rapid demographic growth in cities and their catchment areas, and high visitor
volumes. High street shopping areas are correspondingly full. Customers come to
walk around, and eat in the many restaurants, but are no longer buying as much.
The proportion of e-commerce relative to total retail sales is not in fact overly high
at 10 per cent. However, clothing, footwear and electronics are to a large extent
purchased online, with a particular impact on city centre retail.
» Retailers are reacting to the shift to online shopping by focusing on certain

locations and reducing the size of shop floors. However, demand for space from
restaurants, city-centre supermarkets and fitness centres has stabilised. Levels of
prime rents are therefore being maintained, having climbed by around 40 per cent
to an average of nearly EUR 300 per sqm in the last ten years. We expect rents
to remain stable in the forecasting period up to 2019. However, landlords will have
to make concessions. These will include shorter contract periods with options to
extend, and sales-related rental clauses.
FORECASTS FOR RETAIL PROPERTIES
Prime rents Change in prime rents

in EUR per sqm in % vs. prev. yr.
2017 2018e 2019e 2017 2018e 2019e
Berlin 310 310 310 0.0 0.0 0.0
Dusseldorf 280 280 280 1.8 0.0 0.0
Frankfurt 300 300 300 0.0 0.0 0.0
Hamburg 285 285 285 0.0 0.0 0.0
Cologne 255 255 255 2.0 0.0 0.0
Munich 345 345 345 0.0 0.0 0.0
Stuttgart 250 250 250 0.0 0.0 0.0
Top locations average 298.4 298.4 298.4 0.3 0.0 0.0
Source: BulwienGesa, Feri, DZ BANK Research forecast

The prime rent represents the average of the top 3 to 5 per cent of market rentals, and the figure stated does
not therefore correspond to the absolute prime rent.
Office – lower vacancy rate dramatically reduces supply of space

» Despite continuing strong employment growth in top locations, office space there Office: high demand for space drives
has only expanded to a manageable extent in recent years. The supply of up prime rents in all top locations
available office space has thus fallen dramatically. In Berlin, Munich and Stuttgart,
the vacancy rate has shrunk to around 2 per cent, and to around 4 per cent in
Hamburg and Cologne. It is therefore becoming increasingly difficult for potential
tenants to rent large interconnecting space in their desired locations. Reserves of
vacant property are more extensive only in Dusseldorf and Frankfurt, where more
than 7 and more than 8 per cent of office space respectively remains unoccupied.
» In this climate, it is not surprising that prime rents are rising in all top locations.
However, apart from Berlin, rent growth is fairly moderate. Clearly, even the space
shortage is not prompting cost-conscious companies to enter into expensive
2018 | 2019
rental contracts. In order to contain fixed costs, they are also taking up the growing
supply of coworking space, particularly if they only need space temporarily. The
success of this on-trend flexible renting of fully equipped office space is also
attributable to the shortage of space. We expect the moderate increase in prime
office rents to essentially continue in the forecasting period up to 2019 as the
number of vacant properties continues to fall.
FORECASTS FOR OFFICE PROPERTIES
Prime rents Change in prime rents

in EUR per sqm in % vs. prev. yr.
2017 2018e 2019e 2017 2018e 2019e
Berlin 30.0 32.7 34.0 7.1 9.0 4.0
Dusseldorf 24.5 25.0 25.5 0.0 2.0 2.0
Frankfurt 38.5 39.5 40.5 8.5 2.6 2.5
Hamburg 26.5 27.0 27.5 1.9 1.9 1.9
Cologne 21.0 21.5 21.9 0.0 2.4 2.0
Munich 36.0 37.0 38.0 3.7 2.8 2.7
Stuttgart 21.4 22.0 22.5 8.6 2.8 2.3
Source: BulwienGesa, Feri, DZ BANK Research forecast

The prime rent represents the average of the top 3 to 5 per cent of market rentals, and the figure stated does
not therefore correspond to the absolute prime rent.
Residential – housebuilding picks up, but insufficient to meet housing needs

» Reserves of vacant properties have long since been used up in housing markets Residential: housing markets in
in the top locations. As a result of strong demographic growth, new building lags top locations remain strained and
behind housing demand despite an increase in the number of completions. This continue to drive up rents
is making construction more difficult. On the one hand, the pressure is mounting
in the seven cities whose populations have increased by 1 million people since
2007. While building land is becoming more scarce, protests by residents are
increasing. On the other hand, capacity in the construction sector has been largely
exhausted, which is also driving building costs up sharply. This is widening the
gap between the number of homes approved and actually completed.
» There is no sign of conditions easing in the housing markets, and the upward
momentum for residential rents is therefore likely to persist in the forecasting
period up to 2019. However, we expect the pace of growth in the initial rents we
have reviewed to weaken, because the larger number of completions is improving
the supply of fairly expensive new apartments.
FORECASTS FOR RESIDENTIAL PROPERTIES
Average initial rents in EUR Average initial rents in % vs.

per sqm prev. yr.
2017 2018e 2019e 2017 2018e 2019e
Berlin 12.5 12.9 13.2 4.2 2.8 2.7
Dusseldorf 12.8 13.2 13.5 1.6 3.1 2.3
Frankfurt 15.1 15.5 16.0 2.0 2.6 3.2
Hamburg 13.9 14.3 14.7 3.7 2.9 2.8
Cologne 12.5 13.0 13.5 4.2 4.0 3.8
Munich 18.5 19.2 20.0 8.8 3.8 4.2
Stuttgart 14.5 15.4 16.0 11.5 6.2 3.9
Source: BulwienGesa, Feri, DZ BANK Research forecasts
2018 | 2019
CURRENT ECONOMIC CLIMATE IN GERMANY
German companies remain very calm in the face of the international risks. The ifo German economy still on a growth
business climate index, which fell again slightly in July, picked up again surprisingly course despite headwind
strongly in August. Despite all the current risks and uncertainties, German companies
remain convinced of the stability of the domestic economy. One reason for this is the
easing of the USA/Europe trade dispute following the meeting between Trump and
Juncker. However, an escalation of the conflict between the USA and China could still
take its toll. The continuing relatively wide gap between positive assessments of
current conditions and more sceptical expectations has often served as a warning sign
in the past and may be indicative of a forthcoming economic slowdown. Current survey
results nevertheless show that sentiment in German boardrooms remains positive.
This is also due to the fact that sectors which are very strongly geared to the domestic
market remain extremely buoyant, first and foremost the construction industry, where
companies are currently struggling to keep up with orders. True, macroeconomic
growth will probably come in below 2% in 2018, however we still expect a positive
result. Given the uncertain global conditions and the shortage of skilled workers, the
German economy will be unable to exceed these levels for the time being.
Based on preliminary calculations, the inflation rate in Germany – measured by the EU Inflation rate nudges above 2%
Harmonised Index of Consumer Prices – reached 2.1 per cent in July,
unchanged from the previous month. Food and energy prices have shown above-
average growth of 6.6 per cent and 2.6 per cent respectively within a year. We still
forecast that the average inflation rate will reach 1.9 per cent in 2018, and will remain
virtually unchanged in 2019.
ECONOMIC FORECAST GERMANY
in % y-o-y 2016 2017 2018e 2019e

GDP 2.2 2.2 1.7 1.4
Private consumption 2.1 1.8 1.3 1.7
Public consumption 3.9 1.3 0.8 1.6
Investment 3.1 3.2 3.5 2.9
Exports 2.6 4.7 3.2 3.5
Imports 3.9 5.2 3.1 4.9
Unemployment rate (in %) 6.1 5.7 5.2 5.0
Inflation rate (HICP) 0.4 1.7 1.9 1.9
Budget balance (in % of GDP) 0.8 1.1 0.7 0.6
MACROECONOMIC GROWTH AND UNEMPLOYMENT TREND IN CONSUMER PRICES (HICP)
12 3, 0
forecast 2, 8
10 2, 5 forecast
2, 5 2, 3
8 2, 1
6 1, 9 1, 9 1, 9
3, 7 3, 3 4, 1 3, 6 2, 0 1, 8 1, 8
1, 7
4 1, 6
2, 2 1, 7 2, 2 2, 2 1, 7
1, 2 0, 7 1, 1 1, 4 1, 3
2 0, 5 0, 5 1, 5
1, 1 1, 2
0
1, 0 0, 8
-2 0, 0
-0, 7
-4 0, 4
-5, 6 0, 5 0, 2
-6 0, 1
200 2
200 3
200 4
200 5
200 6
200 7
200 8
200 9
201 0
201 1
201 2
201 3
201 4
201 5
201 6
201 7
201 8
201 9
0, 0
200 2
200 3
200 4
200 5
200 6
200 7
200 8
200 9
201 0
201 1
201 2
201 3
201 4
201 5
201 6
201 7
201 8
201 9
GDP yoy in % une mploymen t rate i n %

i nfl ati on rate (H I CP)
Source: DZ BANK Research HICP = Harmonised Index of Consumer Prices

2018 | 2019
COWORKING – A FAD OR A MODEL FOR SUCCESS?
Coworking is currently a hot topic in the office market. A few years ago this was a Strong growth in coworking
virtually unknown concept, but today no report on the office market can ignore it. widespread in office market
However, what exactly is coworking, which is often depicted as young people sitting
on comfortable leather sofas with laptops? And is it a sustainable concept for the office
market in a working world increasingly influenced by digitalisation, or is it merely a
passing fad? It is certainly growing fast. Since coworking space was first made
available in San Francisco in the middle of the last decade, the number of international
coworking locations has literally exploded. Today there are around 20,000 locations
worldwide providing working space for a total of 1.9 million users.
According to a survey by Savills (February 2018), around 550 “flexible workspaces” Working in a living room atmosphere
are available in the market in Germany. The largest proportion consists of 350
coworking spaces based on the narrower definition of the term. Coworking typically
consists of rented office workspace equipped with furniture and printers which is ready
for immediate use on a flexible - in other words short-term and temporary - basis.
Instead of a traditionally partitioned office structure, working areas consist of shared
space. The environment is trendy and provides a high quality environment with seating
areas and leisure facilities. Offer is geared mainly to entrepreneurs, self-employed
people, and freelancers. Communications and networking are a high priority.
Operators are mainly local, semi-professional suppliers who also occasionally
organise collaborative events for users.
NUMBER OF COWORKING LOCATIONS GROWS RAPIDLY WORLDWIDE COWORKING LOCATIONS BECOMING LARGER: AVERAGE NUMBER
OF USERS IN LOCATIONS INCREASING
20. 000 100 1. 800. 000 100

18. 000 90 1. 600. 000 90
16. 000 80 1. 400. 000 80
14. 000 70 1. 200. 000 70
12. 000 60 1. 000. 000 60
10. 000 50 800 .00 0 50
8. 000 40 600 .00 0 40
6. 000 30 400 .00 0 30
4. 000 20 200 .00 0 20
2. 000 10 0 10
0 0 201 0 201 1 201 2 201 3 201 4 201 5 201 6 201 7 201 8
201 0 201 1 201 2 201 3 201 4 201 5 201 6 201 7 201 8 coworki ng user worldwide (lh s)
coworki ng locati on s worl dwi de ( lh s) yoy in % ( rh s) coworki ng user per coworkin g l ocation (rh s)
Source: Statistica / deskmag Source: Statistica / deskmag
However, the main interest in coworking is not focused so much on the pure form of Coworking in an office market
the concept. Office markets are geared more to national or international suppliers such usually refers to hybrid space
as Design Offices, Mindspace, rent24 or the WeWork hybrid concept. Around 70
locations in Germany are in the market in this segment, particularly in the Top 7 cities,
and they are proliferating. They combine a relaxed coworking environment with sepa-
rate workplaces, in other words offices for individuals and teams which were previously
supplied mainly by professionally run business centres. Hybrid coworking providers
are extending their user group in this way to include established companies seeking a
large degree of privacy, which rules out shared working space. Similar to traditional
business centres, the providers of the hybrid concept are mainly situated in attractive
office locations.
2018 | 2019
FLEXIBLE WORKSPACE – DIFFERENT CONCEPTS
Business centres Coworking spaces Hybrid coworking
Community memberships and/or

User contract Community memberships
user contract
Open-plan, individual and team of-
Individual and team offices Open-plan
fices
Professional office services (e.g.
Printers, internet, catering/drinks Printers, internet, catering/drinks
secretariat services)
High-value furnishings Simple furnishings High-value furnishings
Semi-professional and local suppli-
Professional suppliers Professional suppliers
ers
Users are mainly entrepreneurs, Users are entrepreneurs, start-ups,
Users are mainly companies, self-
start-ups, self-employed people self-employed people and freelanc-
employed people and freelancers
and freelancers ers
Source: derived from Savills
The traditional form of business centre mentioned above, which consists of fully Original form of flexible rented office
equipped and flexibly rented office space, is available in 130 locations in Germany. space is traditional business centre
Most are operated by Regus which has around 3,000 locations worldwide. Customers
are mainly offered high-value office space in attractive office locations, supplemented
by extensive services, such as a secretariat. The working space is separated with a
typical structure of office floors. There are generally no communal areas.
The key feature of the hybrid space on offer is its broad user group: in addition to Advantage of hybrid coworking is
entrepreneurs, start-ups, the self-employed and freelancers, it is of particular benefit the broad range of supply, making
to established companies with their own office locations. Flexible office space offers the concept attractive to many user
various advantages for them. Workers can be accommodated here if there is groups
insufficient office capacity at their own premises. Working space can also be provided
in places where the company does not have offices of its own. The space can also be
used by project teams which can work together successfully here, and - intentionally -
carry out specific tasks outside the company location. Established, and financially
strong companies are welcome customers for coworking providers. Around two thirds
of work places are therefore provided in physically separate areas, in contrast to the
pure form of the concept.
This type of space allocation is in keeping with a survey of coworking users and For users of hybrid coworking
providers carried out by Colliers in spring 2018. The main reasons cited for renting space, space availability is more
space were low fixed costs where only a temporary increase in space is needed, and important than “pure coworking
a lack of space available at the desired location. The third criterion is the need for for its own sake”
space in a start-up or growth phase. The original coworking concept, for example
involving an exchange of space with other users, a modern working environment and
new working methods, is also important to users, but is not quite so popular. Good
technical infrastructure and the availability of conference space is very important. Gen-
eral office services and lounges/communal areas are also regarded as positive
features. Interest in communal events is fairly limited. City-centre locations in major
cities are preferred.
Professional coworking providers let around 200,000 sqm of office space in the seven Professional coworking providers
top locations in 2017, five times as much as in the previous year, and around 5 per account for 5 per cent of office
cent of total take-up. This is a substantial volume given that providers have only been space in the Top 7
active to any significant extent in Germany since 2015. Conversely, take-up among
coworking providers by the narrower definition is marginal, similar to that of business
centres.
2018 | 2019
HYBRID COWORKING OFFER BASED ON THE EXAMPLE OF WEWORK
Offer Costs Services provided Particularly suitable for
- Teleworkers and part-time

Guaranteed working space in lounge
Hot desk From EUR workers
area. User brings laptop and looks for a
(coworking) 280/ month - Customer meetings
free place.
- more than one week per month
- Start-ups and small agencies
Own desk From EUR User has access to a specific desk in
- Team work and growth
(coworking) 340 / month communal working area.
- daily use
Separate, lockable offices which provide - Companies
Private office
From EUR space for teams of various sizes. Ready - Core teams, satellite teams
(business
470 / month for occupancy and equipped with desks, - Independence within a
centre)
chairs and cupboards. community
For all the above users, some of the following are subject to a charge: conference rooms,
printers, internet, postal/package service, refreshments, cleaning, access to other WeWork
locations
Individually
Depending on individual requirements, a
structured of-
individual floor/building is fitted out and made - large companies
fice environ-
available to the user.
ment
Source: WeWork
Future demand for professional hybrid coworking space is difficult to gauge. So long However, future demand is
as office demand remains high and space is in short supply, providers are likely to difficult to gauge
benefit. However, how will the situation look if the supply of office space generally
improves or demand for office space falters as a result of an economic slowdown?
Established companies could opt out of coworking locations previously used because
of a shortage of space. However, it is also possible that, despite higher rents, they
have learned to appreciate the flexibility of this type of space, and will use coworking
arrangements permanently in addition to their own premises in order to reduce
dependency on long-term rental contracts. However, an economic crisis would be
likely to hit providers of coworking harder.
Providers of coworking are also facing competition as business centre operators such Competition for coworking providers
as Regus also jump on the bandwagon. The office property investor alstria has likely to increase
established Beehive - its own coworking concept. As the success of coworking
concepts grows, office landlords could themselves become providers by adapting
some office space and offering fully equipped working premises as well as vacant
office space. This would enable them to service various demand segments themselves
and potentially generate higher rental revenue.
The particular type of space in demand from hybrid providers differs from usual rental Space concepts require special
demand and poses a challenge for investors and owners of office properties. For it is expansion of office floors
virtually impossible for coworking providers to realise their space concepts in office
floors which are generally fully completed. In fact, the optimal scenario for coworking
concepts is to acquire space at the “shell” stage of construction. It is therefore of
relevance to landlords whether the professional coworking business model proves
sustainable. We expect professional coworking to have substance and not to remain
merely a short-lived trend in the office market. However, the supplier structure could
continue to evolve.
2018 | 2019
WILL RENTAL YIELDS ALSO PICK UP AGAIN WHEN INTEREST

RATES RISE?
Commercial properties are very popular for investment purposes. After increasing for Demand for commercial properties
several years, annual investment volume has reached around EUR 55bn since 2015. remained high in first half of 2018
Amounts in the double-digit billions have also been invested in housing portfolios. This
trend continued in the first half of 2018 when EUR 26bn was spent on commercial
properties and EUR 11bn on multi-family homes. While, as usual, nearly half of market
volume relates to office properties, the market share for retail properties has declined
by several percentage points. The decline in purchases is mainly due to a supply
shortage. First-class properties are rare and generate only meagre yields, prompting
investors to increasingly look outside prime locations and to focus more on properties
which have weaknesses.
COMMERCIAL PROPERTIES AND HOUSING PORTFOLIOS STILL IN DE- OFFICE PROPERTIES ALSO THE MOST FREQUENTLY TRADED ASSET
MAND FROM INVESTORS IN 2017 CLASS OF COMMERCIAL REAL ESTATE
80 100 % 4% 3% 4%
6% 6%
11% 10 % 10 % 13 %
70 90% 11% 6%
6% 8% 10 % 7% 7%
60 80% 8%
7% 7% 7%
9% 15 %
70% 9%
50 11%
60% 27 %
40 22% 3 1% 24%
20 % 18 %
50%
30
40%
20 30%
10 20% 46 % 44% 41% 45 % 44% 44%
0 10%
200 4
200 5
200 6
200 7
200 8
200 9
201 0
201 1
201 2
201 3
201 4
201 5
201 6
201 7
0%
201 3 201 4 201 5 201 6 201 7 201 8-H 1
comme rci al real estate resi den ti al portfol ios total oth er mi xed u se h otel l ogi stic s reta il offi ce
Source: Ernst & Young Source: JLL, Colliers (Hotels)
High demand has led to a steady decline in yields. While prime office and retail Rental yield falls below 3 per cent
properties were still generating initial rental yields of around 5 per cent ten years ago, for prime commercial properties in
the corresponding figure today is closer to 2 per cent. And multi-family homes currently the Top 7
cost 10 to 15 years of rent more than in 2008. However, bond yields have fallen even
more sharply, and the divergence from them therefore remains very wide. There are
nevertheless signs that the trend is gradually reversing. Interest rates in the United
States have already bottomed out due to the buoyant economy and a visible increase
BOND YIELDS PICKING UP AGAIN IN THE USA, WHILE BUNDS ARE AS INFLATION RISES, LOW INTEREST RATES IN EUROPE ARE ALSO
ONLY JUST EDGING ABOVE ZERO LIKELY TO END
YIELDS OF BUNDS AND US GOVERNMENT BONDS IN % INFLATION RATES IN THE EUROZONE AND THE USA IN %
8 4, 0
7 3, 5
6 3, 0
5 2, 5
4 2, 0
3
1, 5
2
1, 0
1
0, 5
0
0, 0
-1
-0, 5
199 3
199 4
199 5
199 6
199 7
199 8
199 9
200 0
200 1
200 2
200 3
200 4
200 5
200 6
200 7
200 8
200 9
201 0
201 1
201 2
201 3
201 4
201 5
201 6
201 7
201 8
201 0 201 1 201 2 201 3 201 4 201 5 201 6 201 7 201 8

German y B un d 9 -10-year yi eld U S 10-yea r Treasury yie ld Eu rozone US
Source: Datastream, OECD Source: Bureau of Labor Statistics, Eurostat

2018 | 2019
in inflation. The Eurozone still lags behind, but economic output is growing here too, As expansionary monetary policy is
unemployment is falling, and consumer prices are rising. Yields also therefore look set phased out, rental yields could show
to rise in the Eurozone. Although the ECB will maintain its expansionary monetary movement
policy for some time yet, the likely phasing out of its bond purchase programme in the
autumn will signal a gradual shift. The favourable economic climate in Germany and
the shortage of properties in most places still speak for buoyant rental business. Rental
yields are nonetheless expected to increase as interest rates pick up. However, it is
virtually impossible to gauge how strong this trend will be.
RETAIL: TREND IN INITIAL RENTAL YIELD RENTAL YIELD IN INDIVIDUAL TOP LOCATIONS
NET INITIAL YIELD IN CENTRAL RETAIL LOCATIONS IN % NET INITIAL YIELD IN CENTRAL RETAIL LOCATIONS IN %
7,0 5, 5 B erli n
6,5
5, 0 Dusseldorf
6,0
Fran kfurt
5,5
4, 5
5,0 H amburg
4,5 4, 0 Col ogn e
4,0 M u ni ch
3, 5
3,5
Stu ttgart
3,0 3, 0
2,5
199 7
199 8
199 9
200 0
200 1
200 2
200 3
200 4
200 5
200 6
200 7
200 8
200 9
201 0
201 1
201 2
201 3
201 4
201 5
201 6
201 7
2, 5
200 8
200 9
201 0
201 1
201 2
201 3
201 4
201 5
201 6
201 7
201 8
Top-7 Region al-12
OFFICE: TREND IN INITIAL RENTAL YIELD YIELD TREND IN INDIVIDUAL TOP LOCATIONS
NET INITIAL RENTALS IN CENTRAL OFFICE LOCATIONS IN % NET INITIAL YIELD IN CENTRAL OFFICE LOCATIONS IN %
7,0 6, 0 B erli n
6,5
5, 5 Dusseldorf
6,0
5, 0 Fran kfu rt
5,5
5,0 H ambu rg
4, 5
4,5 Col ogn e
4, 0
4,0 M u ni ch
3,5 3, 5
Stu ttgart
3,0
3, 0
2,5
199 7
199 8
199 9
200 0
200 1
200 2
200 3
200 4
200 5
200 6
200 7
200 8
200 9
201 0
201 1
201 2
201 3
201 4
201 5
201 6
201 7
2, 5
200 8
200 9
201 0
201 1
201 2
201 3
201 4
201 5
201 6
201 7
201 8
Top-7 Region al-12
RESIDENTIAL: RENT MULTIPLE FOR MULTI-FAMILY HOMES RENT MULTIPLE IN INDIVIDUAL TOP LOCATIONS
AVERAGE RENT MULTIPLE AVERAGE RENT MULTIPLE
28 34 B erli n
26 32
Dusseldorf
24 30
22 28 Fran kfu rt
26
20 H ambu rg
24
18 Col ogn e
22
16
20 M u ni ch
14 18
Stu ttgart
12 16
10 14
199 7
199 8
199 9
200 0
200 1
200 2
200 3
200 4
200 5
200 6
200 7
200 8
200 9
201 0
201 1
201 2
201 3
201 4
201 5
201 6
201 7
12
200 8
200 9
201 0
201 1
201 2
201 3
201 4
201 5
201 6
201 7
201 8
Top-7 Region al-12
Source: BulwienGesa Source: BulwienGesa

Explanation: net initial yields for office/retail properties are calculated from the net annual rent and total purchase price including additional costs. For the multi-family
home multiple, the purchase price is divided by the “cold” rent in the first year and thus corresponds to the reciprocal value of the gross initial yield.
Top 7: Index of top locations Berlin, Dusseldorf, Frankfurt, Hamburg, Cologne, Munich and Stuttgart
Regional 12: Index of regional centres Augsburg, Bremen, Darmstadt, Dresden, Essen, Hannover, Karlsruhe, Leipzig, Mainz, Mannheim, Munster und Nuremberg
2018 | 2019
RETAIL PROPERTIES
Germany is doing well. There are good reasons why the Federal Republic is one of Things are good for the Germans,
the most popular countries of destination for immigrants. In recent years prosperity retail conditions could scarcely be
has increased further thanks to the economic upturn under way since 2010, which any better
provides an attractive climate for retail activity. The main contributory factors here are
record levels of employment, leading to a visible increase in wages and pensions. Not
even international crises such as the forthcoming Brexit or the trade conflict initiated
by US President Trump have seriously dampened positive consumer sentiment so far.
LABOUR MARKET SHOWS NO WEAKNESS: UNEMPLOYMENT FALL- NEITHER BREXIT NOR TRADE WAR CAN DAMPEN GERMAN
ING, JOB VACANCIES INCREASE TO RECORD LEVEL CONSUMER SENTIMENT
13 900 18
12 800 16
11 700 14
12
10 600
10
9 500
8
8 400 6
7 300 4
6 200 2
5 100 0
4 0 -2
-4
199 2
199 4
199 6
199 8
200 0
200 2
200 4
200 6
200 8
201 0
201 2
201 4
201 6
201 8
200 1
200 2
200 3
200 4
200 5
200 6
200 7
200 8
200 9
201 0
201 1
201 2
201 3
201 4
201 5
201 6
201 7
201 8
u ne mploymen t rate i n % (l hs) vacan ci es i n thou san ds (rh s) GfK con su me r cl ima te
Source: Bundesbank Source: GfK
In the ninth successive year of the upturn, the labour market is contributing to full em- Labour market drives growing
ployment in an increasing number of regions. The unemployment rate calculated by prosperity
the Federal Employment Agency fell to 5.2 per cent in August 2018. The harmonised
figure reported by Eurostat is significantly lower again at just over 3 per cent, currently
the lowest level in the Eurozone. In an increasing number of sectors it is impossible
for companies to find enough suitable candidates to fill job vacancies and take up
training places.
INFLATION DILUTES REAL WAGE GROWTH SLIGHTLY TOURISM FLOURISHING: SHOPPING TRIPS INCREASINGLY IM-
YEAR-ON-YEAR IN PER CENT (6-MONTH AVERAGE) PORTANT FOR RETAIL SECTOR
4 190 500
180 475
3 170 450
160 425
2 150
400
140
1 375
130
350
120
0 325
110
100 300
-1
90 275
80 250
-2
199 3
199 4
199 5
199 6
199 7
199 8
199 9
200 0
200 1
200 2
200 3
200 4
200 5
200 6
200 7
200 8
200 9
201 0
201 1
201 2
201 3
201 4
201 5
201 6
201 7
201 8
199 8
199 9
200 0
200 1
200 2
200 3
200 4
200 5
200 6
200 7
200 8
200 9
201 0
201 1
201 2
201 3
201 4
201 5
201 6
201 7
201 8
visitor arrival s in mi ll ion , an n ual i sed (lh s)

con su mer pri ces n om in al wages real wages ove rn igh t sta ys i n m il li on, ann u al ised (rh s)
Source: Federal Statistical Office, Thomson Reuters Source: Federal Statistical Office
On closer inspection, only real wage growth has weakened slightly compared to the Higher inflation brakes real
three previous years. Between 2014 and 2016, consumer prices increased only wage growth
marginally, thus reducing nominal wages only slightly. However, inflation has now
2018 | 2019
reached the European Central Bank’s target of 2 per cent again, clearly offsetting the
additional financial scope provided by solid wage growth. It is all the more positive that,
after many years of growth, tourism in Germany also shows no sign of weakening. City
breaks remain popular, and growth in visitor numbers is leading to longer queues
outside popular museums, and increasing footfall in city centres.
Online shopping also impacting on top locations
However, the full impact of positive consumer sentiment is not being felt by city centre Online shopping a growing concern
retailers and retail landlords. Changes in shopping habits as a result of digitalisation for city centre retailers
are now also a cause of concern in attractive high street locations and shopping
centres. For many of the products on offer here such as clothing, shoes and electron-
ics, are no longer being purchased by customers in shops, but ordered online, using
a PC at home or a smart phone while travelling. Conversely, local suppliers, such as
supermarkets, are less affected by the online boom. The proportion of e-commerce to
total retail sales therefore remains manageable at around 10 per cent; however, the
impact is greater for city centre retail activity which is trend-driven.
ON AN INFLATION-ADJUSTED BASIS THE GERMAN RETAIL SECTOR IMPORTANCE OF E-COMMERCE TO RETAIL SECTOR AS A WHOLE
HAS ONLY GROWN IN A FEW YEARS * GROWS FROM YEAR TO YEAR *
5 550 11
4 500 10
450 9
3
400 8
2 350 7
1 300 6
0 250 5
200 4
-1 150 3
-2 100 2
-3 50 1
0 0
-4
200 2
200 3
200 4
200 5
200 6
200 7
200 8
200 9
201 0
201 1
201 2
201 3
201 4
201 5
201 6
201 7
201 8e
-5
199 3
199 4
199 5
199 6
199 7
199 8
199 9
200 0
200 1
200 2
200 3
200 4
200 5
200 6
200 7
200 8
200 9
201 0
201 1
201 2
201 3
201 4
201 5
201 6
201 7
201 8e
reta il e -commerce sale s in EU R bn (l hs)

reta il sal es excl . e-comm erce sal es i n EU R bn ( lh s)
n om in al yoy i n % real ggü. V orj ah r in % e-comm erce sal es i n % of total retai l sa les (rh s)
Source for both charts: HDE * Retail sales excl. cars, petrol stations and drugstores, excl. VAT
It would be easier for the high-street retail sector to absorb the impact of the 10 per Retail sales growth only briefly
cent annual growth in online shopping if overall market growth was stronger. True, reached high levels
retail sales showed strong annual growth ranging from 3 to more than 4 per cent
between 2015 and 2017. However, these years were exceptions, since no sales
growth on this scale had previously been recorded since the beginning of the 1990s.
If we also take account of the growth in consumer prices, the picture becomes even
gloomier. Adjusted for inflation, retail sales have grown in only a few years out of a
25-year period, essentially from 2014 to 2017, a phase characterised by high nominal
sales growth and low inflation.
Conversely, there are signs of only zero growth in inflation-adjusted retail sales this Price-adjusted retail sales likely to
year. The German Retail Association (HDE) thus expects growth of 2 per cent in total stagnate this year
retail sales. However, this is only marginally higher than the expected trend in inflation,
and the retail sector could therefore stagnate again despite generally excellent
conditions. Based on the much stronger growth in online business, this even indicates
a slight decline in high-street retail sales.
In many pedestrian zones, particularly in small and medium-sized towns, the Pedestrian zones in small and
abovementioned trend is already clearly visible. Footfall is limited and vacant medium-sized towns already
properties are obvious. The situation is not quite as bad in many growing regional suffering visibly from e-commerce
2018 | 2019
centres and of course in top locations, where shopping streets and shopping centres
are generally packed. However, this trend is also leaving its mark on top German retail
locations.
National and international retailers are adapting their in-store concepts to the altered Retailers adapt sales channels and
conditions. They are reacting to the shift towards e-commerce - via companies’ own reduce sales space
online shops or large internet traders such as Amazon or Zalando - by scaling down
sales space, concentrating on fewer locations and reducing branch size. However,
rental costs are still being kept in check more by other measures. Generally speaking,
rent increases are no longer acceptable in high-street locations. In some places, a shift
is also taking place away from expensive locations towards much cheaper neighbour-
ing areas. In particular, shorter rental contracts with fixed rents are being agreed and
are being replaced by short leases of 3 years with an extension option; sales-related
rental payments have also become commonplace.
Conditions are also therefore becoming more challenging for retail landlords. The era Retail landlords lose some demand
of automatic demand for sales space in top locations and of rents outpacing sales is
over. Weaker demand for space is also being accompanied by a growing supply of
new developments in shopping streets and shopping centres built in recent years. An
increasing number of retail chains have also gone bankrupt in the recent past.
Examples are Butlers, Strauss Innovation, Wöhrl and – only a few weeks ago – Bench.
Instead, it is likely to take longer to market sales space, rental contracts could become More difficult to market space
shorter, and rent payments more volatile as a result of vacant properties, insolvency
or rents linked to sales. This means that high purchase prices for retail properties are
also less likely to be justified by the prospect of rising rents, as in the past. The
structure of the customer base and requirements are also shifting. Fashion retailers
are often being replaced by restaurant chains, supermarkets and drugstores, as well
as fitness studios. Owners of retail properties will also have to adjust to shorter periods
between refurbishment measures, in order to ensure that their properties remain
attractive to chain stores and their customers.
Retail: comparison of top locations

In contrast to many other cities, demographic growth and flourishing tourism are Top locations benefit as
enabling city-centre locations in prime locations to offset the decline in sales caused retail destinations from strong
by online shopping. The populations of the seven top locations jointly have grown demographic growth
by around 1 million people since 2007. The population of Berlin alone has grown by
around 360,000 people. This is creating significant additional purchasing power of
nearly EUR 6 bn in the seven top locations, based on the average per capita figure
of EUR 5,825 in Germany in 2018 calculated by GfK. The fact that some of this is
spent in city centre shops and shopping centres at least mitigates the decline in sales
caused by e-commerce.
However, the strong growth in the number of visitors has also clearly become a more Strong growth in visitor numbers
important economic factor. This is already evident from the large number of hotels creates additional sales potential
which have opened in major German cities. Below the line, around 85 million overnight
stays were reported in the top seven locations in 2017, considerably more than in the
past. In 1997 the figure was around 29 million, rising to about 50 million in 2007. This
growth of 35 million overnight stays within ten years - 14 million of which were in Berlin
- generates substantial cash flows for restaurants and hotels, as well as additional
revenue for the retail sector. Shopping tourists from abroad in particular, for example
from the Gulf states or China, often spend large amounts.
2018 | 2019
STRONG DEMOGRAPHIC GROWTH ALSO CREATES MORE SALES PO- IMPORTANCE OF VISITORS AS A DEMAND GROUP INCREASING FOR
TENTIAL IN TOP LOCATIONS TOP RETAIL LOCATIONS
POPULATION 2007 = 100 OVERNIGHT STAYS IN MILLIONS
124 32
29 0%
120 28 growth from
24 19 9 7 to 2017
116
20
112
16 144%
108 218%
12
177%
104
8 120% 128% 123%
100 4
96 0
B erli n Dusseldorf Fran k- H am- Col ogn e M u ni ch Stu ttgart B erli n Dussel- F ran k- H am- Col ogn e Mu ni ch Stu tt-
furt burg dorf furt burg gart
200 7 200 9 201 1 201 3 201 5 201 7 199 7 200 1 200 5 200 9 201 3 201 7
Source: Feri Source: BulwienGesa, German Tourism Association (2017)
Sales space has also nevertheless expanded strongly, although at a much slower rate Sales space has expanded strongly
than the very strong growth visible up to about 2010. Combined with high levels of over a long period…
migration to the Top 7 cities, sales space per capita has essentially stagnated since
2010. Average per capita sales space is around 1.7 sqm in the top locations, although
this also includes all retail segments – i.e. also supermarkets and drugstores.
The slower growth in sales space, and growth in retail sales, have clearly had a … and, in conjunction with
positive impact on sales floor productivity – sales per sqm of sales space. For while stagnating retail sales, has
sales floor productivity fell or at best stagnated between the beginning of the 1900s depressed sales floor
and 2008, sales per unit area recovered considerably again subsequently. However, productivity
the levels reached 25 years ago have not been regained. Since these are also nominal
sales figures, the retail sector is clearly worse off today in terms of inflation-adjusted
sales than 25 years ago.
TOP WEST GERMAN LOCATIONS SHOW CONSISTENTLY ABOVE-AV- SHOPPING STREETS IN TOP LOCATIONS WELL REPRESENTED IN TOP
ERAGE PURCHASING POWER 20 BASED ON FOOTFALL
140
(1) Fran kfu rt, Ze il 1439 0
(2) M u ni ch , Kau fin gerstraße 14155
130 (3) M u ni ch , Neuh au ser Straße 13455
(4) Col ogn e, Sch i lderga sse 13040
(5) H an nover, Ge orgstraße 109 85
120 (6) Dortmu nd, W esten h ell en weg 10180
(7) Dusseldorf, Fl in ger Straße 9 6 70
110 (8) Col ogn e, H oh e Stra ße 9 435
(9) Stu ttgart, Köni gstra ße 9 145
(10) Du ssel dorf, Sch adowstraße 9 130
100 (11) H an nover, B ahn h ofstraße 8775
(12) H ambu rg M ön ckebergstraße 8770
90 (13) Nu rem be rg, Ka roli n en straße 8300
(14) B remen , Obern stra ße 8110
(15) M u ni ch , W e in straße 786 5
80 (16) B erli n, Tau en tzi en stra ße 7780
B erli n Dussel- F ran k- H am- Col ogn e M u ni ch Stu tt- (17) Dresden , Prager Straße 776 0
dorf furt burg gart (18) M u ni ch , Tal 7405
(19) B erli n , Alexan derpl atz 7145
purch asin g powe r cen tral i ty average for Germ an y (20) W iesbaden, Kirch gasse 7040
Source: BulwienGesa Source: JLL/EHI calculated on 14 April 2018 (Saturday) from 13h to 16h
In contrast to the longstanding stagnation or decline in sales floor productivity, prime Peak rents up sharply despite falling
rents in all the top locations have picked up strongly since the end of the 1990s. sales floor productivity
Conversely, rent trends in most other large German cities are much flatter. High
demand for space in top locations, which has driven rents up, is based on their
particular attractions for national and international retailers. Because of their significant
2018 | 2019
purchasing power, high footfall, and international flavour, they are well suited for
retailers seeking to enter the German market or test new retail concepts. Other large
cities are particularly appropriate for expansion strategies, and because they are more
numerous, they are more interchangeable.
DEMOGRAPHIC GROWTH HALTS INCREASE IN PER CAPITA SALES SALES FLOOR PRODUCTIVITY ONLY POSITIVE AGAIN IN THE LAST
SPACE FEW YEARS
PER CAPITA SALES SPACE IN SQM RETAIL SALES PER SQM IN EURO (TOP 7)
2, 2 18. 000 4. 200

2, 0
15. 000 4. 000
1, 8
12. 000 3. 800
1, 6
1, 4 9. 000 3. 600
1, 2
6. 000 3. 400
1, 0
3. 000 3. 200
0, 8
0, 6 0 3. 000
B erli n Dussel- Fran k- H am- Col ogn e M u ni ch Stu tt- 199 2 199 7 200 2 200 7 201 2 201 7
dorf furt burg gart reta il space in '0 00 sqm (lh s)
199 3 199 8 200 2 200 6 201 0 201 4 201 8 reta il sal es i n EU R per sqm (rh s)
Source: Feri Source: Feri
Only ten years later, when the upturn which followed the financial crisis led to retail Increase in average prime
sales growth in 2010, sales floor productivity also picked up again. For some years it rents halted in 2016 at just under
has been moving in parallel with the continuing growth in prime rents. However, the EUR 300 per sqm
rent rally in the retail sector ended in 2016 after nearly 20 years at an average of nearly
EUR 300 per sqm. During this period, average prime rents almost doubled. Neither
the attractions of the top locations supported by demographic growth, falling unem-
ployment and continuing growth in the number of visitors, nor the increase in sales
floor productivity facilitated a further increase in rents. With rents already high, and
given the continuing success of online shopping, prime city-centre retail locations have
also reached the financially viable limits of rental expenditure for sales space.
RETAIL: PRIME RENTS STAGNATING, HAVING ALMOST DOUBLED WIDE DIVERGENCE IN PRIME RETAIL RENTS BETWEEN REGIONAL
SINCE THE END OF THE 1990S (TOP 7) CENTRES AND TOP 7
PRIME RETAIL RENTS IN EURO PER SQM PRIME RETAIL RENTS, INDEXED, 1999 = 100
350 190
180
300 170
160
250
150
200 140
130
150 120
110
100 100
90
50
80
199 9
200 0
200 1
200 2
200 3
200 4
200 5
200 6
200 7
200 8
200 9
201 0
201 1
201 2
201 3
201 4
201 5
201 6
201 7
201 8e
201 9e
0
199 9 200 3 200 7 201 1 201 5 201 9e
Region al-1 2 Top-7 Top-7 Region al-1 2
Source: BulwienGesa, DZ BANK Research forecast Source: BulwienGesa, DZ BANK Research forecast
Up to 2016, prime rents in all seven top locations increased visibly. However, the pace Within 10 years prime rents have
varied. On average, prime rents increased by around 40 per cent between 2007 and risen by 20 to 50 per cent depending
2017. However, the rate of increase was only half this level in Stuttgart, while prime on the top location
2018 | 2019
rents in Berlin and Dusseldorf picked up by only about 50 per cent. In mid-2018, prime
rents per sqm were in the region of EUR 100. The two cheapest locations are Stuttgart
and Cologne at EUR 250 and EUR 255 respectively. Levels in Dusseldorf and
Hamburg are similar at EUR 280 and EUR 285 per sqm. The three most expensive
cities are Frankfurt, Berlin and Munich at EUR 300, 310 and 345 per sqm. Prime rents
everywhere have remained stable since mid-2017.
RETAIL: RANGE OF PRIME RENTS BETWEEN MUNICH AND IN THE LAST TEN YEARS, PRIME RENTS HAVE RISEN MODERATELY
STUTTGART NEARLY EUR 100 PER SQM TO STRONGLY, DEPENDING ON THE LOCATION
PRIME RETAIL RENTS IN EUR PER SQM PRIME RETAIL RENTS, INCREASE BETWEEN 2007 AND 2017 IN %
360 51
340 B erli n 47
320 Dusseldorf
Fran kfu rt 40 41
300 39
H ambu rg
280 Col ogn e 33
260 M u ni ch
240 Stu ttgart 24
220 Top-7
19
200
180
160
140
120
199 5
199 7
199 9
200 1
200 3
200 5
200 7
200 9
201 1
201 3
201 5
201 7
201 9e
Stu tt- Col ogn e M u ni ch H am- F ran kfu rt Top-7 Dussel- B erli n
gart burg dorf
Source: BulwienGesa, DZ BANK Research forecast Source: BulwienGesa
While retailers can adjust to the shift in customer behaviour caused by digitalisation by Food courts a recipe for success?
realigning their sales channels, landlords have to adapt sales space as demand from An easier adjustment for retailers
retailers declines. It remains to be seen whether the gap can be closed by the many than landlords
restaurants and large food courts which are increasingly a feature of shopping streets
and shopping centres. However, since eating out has become increasingly popular in
Germany in recent years, the prospects for the catering sector are good.
In any case, city centres and shopping centres are likely to continue to face challenges The next few years will be
in the years ahead as customer preferences change, and not only because it will be challenging for the retail sector
virtually impossible to implement rent increases. The merger of Kaufhof and Karstadt,
which is close to completion (per the end of August), could prove to be a game
changer, because it will probably lead to a number of store closures. However, top city
centre locations are not expected to suffer, since footfall should remain high there.
2018 | 2019
European retail
In the European retail sector, London and Paris still enjoy a clear lead in terms of rent Prime rents in large German cities
levels. Prime rents in top German locations are average by European standards, average by European standards
despite a buoyant economy and years of strong growth in retail rents. However, when
making comparisons with other countries, it has to be borne in mind that capital cities
often function as pre-eminent shopping locations in many countries. For
example, this is the case in France/Paris, Austria/Vienna, the UK/London, and
Ireland/Dublin. A large proportion of retailer interest is thus focused on these locations,
since there are no equivalent alternatives. The situation is different in Germany which
has seven top retail locations, giving retailers more choice.
PRIME EUROPEAN RETAIL RENTS: LEVELS ARE AVERAGE IN LARGE GERMAN CITIES, BUT MUCH HIGHER IN LONDON AND PARIS
PRIME RETAIL RENTS IN EUR SQM MONTHLY
2. 400
2. 200
2. 000
1. 800
1. 600
1. 400
1. 200
1. 000
800
600
400
200
0
Source: BNP Real Estate Per: Q4/2017

2018 | 2019
Retail space in Berlin
PRIME RETAIL RENTS IN EUR PER SQM RETAIL SALES IN EUR PER SQM
350 5. 000
300
4. 000
250
200 3. 000
150
2. 000
100
1. 000
50
0 0
200 3 200 5 200 7 200 9 201 1 201 3 201 5 201 7 201 9e 200 3 200 5 200 7 200 9 201 1 201 3 201 5 201 7 201 9e
B erli n Top-7 Region al-1 2 B erli n Top-7 Region al-1 2
Source: BulwienGesa, Feri, DZ BANK Research forecasts Source: Feri
Berlin has done exceptionally well as a retail location and, for some time now, the city Berlin has become a top retail
has been scoring high with investors and retailers alike, driven by a catchment area of location even Europe-wide
over five million people, strong population growth, and the fact that it is a trend-setter
and tourist high spot with 31 million overnight stays p.a. Foreign retailers in particular
are still keen on Berlin as their point of entry into the German market. Moreover, there
has been a marked improvement in Berlin's economic situation with an increase of
almost 300,000 in the number of people in employment in the space of ten years.
Nevertheless, Berlin is still economically weak. The city scores 93 for purchasing
power which is still well below the German-wide average of 100 points. Berlin's retail
sector differs from the other top locations in view of its size and the fact that it has a
few geographically quite separate shopping areas which are also very different in
character. They include the Kurfürstendamm and Tauentzienstraße where rents are
the highest, the Alexanderplatz with its high footfall and Friedrichstraße. The trendy
Hackescher Markt is also in a good location. The shopping "miles" are bolstered by a
large number of shopping centres such as the huge Mall of Berlin. The city is getting
two more, the EAST SIDE MALL which opens in the autumn of 2018, while the
Schultheiss-Quartier opened its doors to customers for the first time in August, as the
first shopping centre in Moabit. As in the other top locations, the increase in floor space
and growing online shopping have brought to a halt the rise in prime rents in Berlin at
EUR 310 per sqm after a 50% increase over ten years up to mid-2016. The situation
is expected to be unchanged this year and next.
RETAIL SPACE IN BERLIN
2016 2017 2019e 2019e

Demand
Per cap. disposable income EUR/month 1,648 1,683 1,713 1,749
Unemployment rate % 9.8 9.0 8.5 8.2
Retail sales EUR m/% yoy 16,348 / 2.5 16,832 / 3.0 17,279 / 2.7 17,756 / 2.8
Retail sales EUR/sqm 2,579 2,593 2,621 2,642
Supply
Retail space in sqm '000 6,339 6,490 6,591 6,720
Retail space % yoy 0.7 2.4 1.6 2.0
Retail rents
Prime/secondary location in Euro/sqm 310 / 14.5 310 / 15.5 310 / 15.5 310 / 15.5
Prime/secondary location % yoy 3.3 / 0.0 0.0 / 6.9 0.0 / -3.2 0.0 / 0.0
Source: Feri, BulwienGesa, DZ BANK Research forecasts

2018 | 2019
Retail space in Cologne
350 6. 000
300 5. 000
250
4. 000
200
3. 000
150
2. 000
100
50 1. 000
0 0
200 3 200 5 200 7 200 9 201 1 201 3 201 5 201 7 201 9e 200 3 200 5 200 7 200 9 201 1 201 3 201 5 201 7 201 9e
Col ogn e Top-7 Region al-1 2 Col ogn e Top-7 Region al-1 2
Along with Dusseldorf, the million-strong city of Cologne is the second most important Strong retail location in
shopping location in Germany’s West, a fact which has led to heightened competition. western Germany
This is likely to be one of the reasons why Cologne now lags behind in the top segment
in terms of prime rents, along with the fact that it has a relatively good supply of retail
space. Unlike Dusseldorf, Cologne's city centre concentrates more on the mass
market. This is true above all of the Schildergasse which has a high footfall and is
90 per cent occupied by high-street brand names. However, lately, Hohe Straße has
had to battle with vacant stores. Cologne also has trendy locations which stand out
from the typical retailer mix. Moreover, a fairly small luxury segment has become es-
tablished in the Domkloster/Wallraffplatz area which is likely to benefit from the remod-
elling of the Dom Hotel. One plus point in the inner city is the three-mile long shopping
promenade and the fact that the city offers is an attractive visit experience. A three-
million strong catchment area, large number of shoppers from the Benelux countries
and over six million overnight stays by tourists and trade fair visitors are all of interest
for retailers. However, purchasing power is slightly lower than in the other top western
German locations. Unlike in other big shopping destinations, there have been no
large-scale retail developments and there are none on the horizon. Slightly larger
projects include the refurbishment of the DuMont Carré and of the former family-run
clothing store Jacobi in Hohe Straße, in which the Saturn flagship store moved in
across five storeys in May 2018. Prime rents are likely to remain at EUR 255 per sqm
during the forecast period up to 2019.
RETAIL SPACE IN COLOGNE
2016 2017 2018e 2019e

Demand
Supply
Retail space % yoy -0.1 0.0 0.1 0.1
Retail rents
Prime/secondary location % yoy 0.0 / 0.0 2.0 / 0.0 0.0 / 0.0 0.0 / 0.0

2018 | 2019
Retail space in Dusseldorf
350 5. 000
300
4. 000
250
200 3. 000
150
2. 000
100
1. 000
50
0 0
200 3 200 5 200 7 200 9 201 1 201 3 201 5 201 7 201 9e 200 3 200 5 200 7 200 9 201 1 201 3 201 5 201 7 201 9e
Dusseldorf Top-7 Region al-1 2 Dusseldorf Top-7 Region al-1 2
For the past decade or so, Dusseldorf has been one big building site. The flyover has After years of building works in
now been replaced by a tunnel and the new underground Wehrhahn line will provide Dusseldorf's city centre, the end is
better connections between the local transport network and high-street locations. at last is sight
Existing department stores have been modernised – Carsch-Haus, Kaufhof, Sevens
and Kö-Galerie – and new ones added along with shopping centres such as the
Kö-Bögen I. However, work on the spectacular Kö-Bogen II and new pedestrian area
in the hitherto rather unattractive Schadowstraße have to be completed (scheduled for
2020) before the city can take advantage of all this building work. However, even in its
old guise, the shopping location, which is synonymous with fashion and luxury, has
performed well. The strength of the location reflects a large catchment area of
two million people and high purchasing power, beaten only by Munich among the top
seven. Unlike Berlin with its various decentralised shopping locations, retail in
Dusseldorf is concentrated in the city centre, which accounts for a large share of one
third of all shopping space in the city. Only Stuttgart has a similar concentration; in the
remaining top seven, the city centre accounts for a maximum of a quarter of the total
sales space. In addition, the luxury end of the Dusseldorf market, the "Kö" offers a
quality visit experience, with a wide choice of places to eat and drink. The former strict
split between a "bank side" and a "shopping side" is gradually disappearing. Last year,
prime rents climbed to EUR 280 per sqm in spite of the endless building site in the city
centre, although we expect them to remain unchanged until the end of 2019. Whether
or not prime rents can then start picking up after the city's facelift will depend to a large
extent on future conditions in the retail sector.
RETAIL SPACE IN DUSSELDORF
2016 2017 2018e 2019e

Demand
Supply
Retail rents
Prime/secondary location % yoy 1.9 / 0.0 1.8 / 0.0 0.0 / 0.0 0.0 / -1.3

2018 | 2019
Retail space in Frankfurt
350 5. 000
300
4. 000
250
200 3. 000
150
2. 000
100
1. 000
50
0 0
200 3 200 5 200 7 200 9 201 1 201 3 201 5 201 7 201 9e 200 3 200 5 200 7 200 9 201 1 201 3 201 5 201 7 201 9e
Fran kfu rt Top-7 Region al-1 2 Fran kfu rt Top-7 Region al-1 2
Frankfurt is one of the strongest retail locations in Germany with an affluent catchment Big names pulling out of Frankfurt,
area of 2.3 million inhabitants, a growing population, rising number of people in highlighting growing challenges
employment and visitors, all of which make the city even more attractive for retailers facing top locations
and hospitality firms. The market has responded to demand for retail space with a
series of developments such as the Skyline Plaza shopping centre which opened near
the trade centre in 2013; the centre is popular because of a large food court. Other
examples are developments in the upmarket Goethestraße such as One Goetheplaza
or the Ma'Ro. Most of the building at present is in the mass market Zeil area. The
Zeilgalerie which has been pulled down is being replaced next to the Kaufhof by the
new UpperZeil. Just a stone's throw away, after not even ten years in operation, the
MyZeil shopping centre is undergoing a complete modernisation programme which will
include a new restaurant area, Foodtopia, and an exclusive programme-cinema. On
the eastern edge of the city, the HessenCenter was due to be modernised and
expanded. However, the increase in floor space now seems to have reached capacity,
and plans to expand the HessenCenter have been scrapped. Moreover, according to
press reports, Kaufhof which wanted to take over most of the UpperZeil, which is
nearing completion, is now pulling out. It has been known for some time that the branch
in the Nordwestcenter is due to close in 2019. Prime rents are the most stable feature
of the Frankfurt retail sector at present, having been unchanged at around EUR 300
per sqm since the end of 2015. We cannot see any headroom for prime rents during
the forecast period up to 2019.
RETAIL SPACE IN FRANKFURT
2016 2017 2018e 2019e

Demand
Supply
Retail rents
Prime/secondary location % yoy 0.0 / -2.8 0.0 / 0.0 0.0 / 0.0 0.0 / 0.0

2018 | 2019
Retail space in Hamburg
350 5. 000
300
4. 000
250
200 3. 000
150
2. 000
100
1. 000
50
0 0
200 3 200 5 200 7 200 9 201 1 201 3 201 5 201 7 201 9e 200 3 200 5 200 7 200 9 201 1 201 3 201 5 201 7 201 9e
H ambu rg Top-7 Region al-1 2 H ambu rg Top-7 Region al-1 2
The leading shopping location in N. Germany is backed by a solid economic trend, Many retail developments enhance
population growth, high purchasing power and a large catchment area of 3.5 million the attraction of Hamburg as a retail
people. In addition, the city has a flourishing tourism trade with some 14 million location
overnight stays p.a. and close to 900,000 cruise ship visitors. The city offers a broad
range of shopping options from conventional mass consumer locations such as the
Spitalerstraße and Mönckebergstraße in the eastern part of the city to luxury
destinations such as the Neuer Wall in west Hamburg. In between, there is the Europa-
Passage with its new Food Court as the only big shopping centre in the heart of the
city. All in all, however, the supply of retail space is tight at only 350,000 sqm, which
is roughly the same as in the much smaller city of Dusseldorf, although clear progress
is being made through a large number of smaller and medium-sized projects. Prime
rents have been less dynamic and have been unchanged since the end of 2015 at
EUR 285 per sqm. In spite of attractive conditions, an increase is not expected during
the forecast period until 2019 because of the success of e-commerce. Two major
projects are likely to have an impact on the future of retail. Firstly, a long way in the
future, the extension of the city's central station, which would benefit the crossing into
the Spitalerstraße. In contrast, the new shopping centre being built by developer
Unibail Rodamco in the southern Überseequartier in the HafenCity will have an impact
much sooner. As an island solution with 200 shops and almost 70,000 sqm of sales
space, the development which is due to open in 2021 could lead to significant
competition for the inner city.
RETAIL SPACE IN HAMBURG
2016 2017 2018e 2019e

Demand
Supply
Retail rents

2018 | 2019
Retail space in Munich
350 5. 000
300
4. 000
250
200 3. 000
150
2. 000
100
1. 000
50
0 0
200 3 200 5 200 7 200 9 201 1 201 3 201 5 201 7 201 9e 200 3 200 5 200 7 200 9 201 1 201 3 201 5 201 7 201 9e
M u ni ch Top-7 Region al-1 2 M u ni ch Top-7 Region al-1 2
Munich is number one in the German retail sector with the highest level of prime rents, Even as Germany's leading
retail-space productivity and purchasing power. One major factor in this is an shopping destination, Munich
economically strong and exceptionally affluent catchment area of over three million should become even more attractive
inhabitants, which moreover is growing very fast. In addition, the city welcomes many through the many developments
visitors from home and especially abroad, who account for around 16 million overnight underway
stays p.a. Munich's attraction as a retail destination is also boosted by the fact that the
city offers a high-quality visit experience with many cafés and restaurants and a broad
range retail offer ranging from the mass-market outlets, to old specialist stores and
luxury shops. All these factors mean that Munich has by far the highest prime rents in
the German retail sector at EUR 345 per sqm. In addition, although the city has quite
a substantial amount of retail space at around half a million sqm, it has not been able
to keep up with high demand, not least because it hardly increased for a long time.
However, this has changed with city-centre projects such as the Palais an der Oper or
the Hofstatt. In addition, there are current developments which will soon boost availa-
ble retail space, such as the old Hettlage building / the Alte Akademie, the remodelling
of the Sattlerplatz or – slightly outside the city centre – the Forum Schwanthalerhöhe
in the former XXXLutz, which will be turned into a conventional shopping centre by
2019. The biggest project is Munich's new central station which is expected to take
until the end of the next decade to complete. We expect the improvement in space
supply and the fact that demand is being dampened by e-commerce to keep a lid on
Munich's prime rents until 2019.
RETAIL SPACE IN MUNICH
2016 2017 2018e 2019e

Demand
Supply
Retail rents

2018 | 2019
Retail space in Stuttgart
350 5. 000
300
4. 000
250
200 3. 000
150
2. 000
100
1. 000
50
0 0
200 3 200 5 200 7 200 9 201 1 201 3 201 5 201 7 201 9e 200 3 200 5 200 7 200 9 201 1 201 3 201 5 201 7 201 9e
Stu ttgart Top-7 Region al-1 2 Stu ttgart Top-7 Region al-1 2
The retail sector in Stuttgart benefits from 2.8 million inhabitants in a catchment area The city has coped well with the
with a strong economy. Although the number of visitors to the city does not score the increase in retail space from three
top mark, tourism is still important with over 6,000 overnight stays per 1,000 new shopping centres in a short
inhabitants. The strength of the city as a retail location and shortage of retail space in space of time
the prime location which is the Königstraße has prompted the development of several
large inner-city retail projects, which led to an increase of over 20 per cent in sales
space in one go: the MILANEO and Gerber shopping centres with a combined 60,000
sqm of retail space opened almost at the same time in the autumn of 2014, at opposite
ends of the city centre shopping district. Nevertheless, the prime rent had increased a
little more to EUR 250 by the spring of 2016, since the new centres not only increased
sales space, but also the city's attraction. Since then, however, the prime rent has
stagnated. Contributory factors are likely to have been not only muted demand for
space from retailers and the opening in the spring of 2017 of the Dorotheen Quartier
with a further 10,000 sqm of shopping floor, which is likely to have a positive impact
on the luxury end of the market in Stiftstraße. The fear which was still being expressed
quite recently that increasing retail space would be too much for the city has not
materialised. The Königstraße has retained its dominant position in Stuttgart's retail
scene, helped also by new stores such as the fashion outlet Saks Off 5th, the second
Primark branch in Stuttgart and a Uniqlo store. This year, the Dutch cult department
store Hema has opened a branch. Prime rents have been stable since 2016 and we
expect this to continue during the forecast period up to 2019.
RETAIL SPACE IN STUTTGART
2016 2017 2018e 2019e

Demand
Retail sales EUR m/% yoy 3,636 / 3,0 3,749 / 3,1 3,852 / 2,8 3,964 / 2,9
Supply
Retail rents

2018 | 2019
OFFICE SPACE
Whereas the shortage of housing is deeply felt by the public, office space has often Like the housing market, the supply
been associated with a persistent vacancy problem, and consequently new office of available office space has become
buildings are often regarded as superfluous. In fact, the opposite is true. Office space very tight
is as much in short supply in many office locations as housing. At the same time, the
situation is almost more difficult for those needing office space, because unlike in the
housing market where demand is for single homes, demand in the office market is
often for larger, connecting spaces. Smaller office units spread over a town are
irrelevant in such cases.
However, the times of high vacancy rates in the office market are not all that far back Until a few years ago, the office
in time. The large number of office buildings which were constructed – often market was still characterised by
speculatively – during the dotcom boom after the turn of the millennium led the vacancy relatively high vacancy rates
rate to shoot up. It remained high for almost ten years during the international financial
market crisis and subsequent euro debt crisis, and is still the basis for the current
perception that there are high vacancy rates in the office market. With the increasing
housing shortage, many empty old office buildings were converted into living space.
This was also an attractive proposition because flat rents had increased sharply and
often exceeded office rents apart from in the best inner-city locations.
Against that background, new office building fell to a low level. Between 2011 and High vacancy rates dampened
2017, less than 800,000 sqm of new office space came to the market in the top construction of new office space
seven locations. In contrast, from the year 2000 to 2010, there was an average of
almost 1.3 sqm of new office space becoming available every year. In spite of the
shortage, the delivery of new space is likely to remain under the 1 million sqm mark in
2018 as well. There signs of a much higher level of new space coming to the market
for the first time since 2009 with an estimated 1.3 million sqm, but not until next year.
This space is urgently needed since the average vacancy rate in the top seven Vacancy rate in 2019 likely to fall to
locations is likely to fall to 3.5 per cent by 2019. The rate is already down to 2 per cent its lowest level in almost 20 years
in Berlin, Munich and Stuttgart. Supply in the office market is therefore likely to remain
tight since it will not be so easy to ease the bottleneck rapidly, even with a high level
of completions.
OFFICE SPACE VACANCY RATE CONTINUES TO FALL SHARPLY OFFICE CONSTRUCTION SLOWLY PICKING UP MOMENTUM
VACANCY RATE AS PER CENT ACCESS TO NEW OFFICE SPACE TOP SEVEN LOCATIONS IN '000 SQM
12 2.500
10 2.000
8
1.500
6
1.000
4
500
2
0 0
199 8
199 9
200 0
200 1
200 2
200 3
200 4
200 5
200 6
200 7
200 8
200 9
201 0
201 1
201 2
201 3
201 4
201 5
201 6
201 7
201 8e
201 9e
199 8
199 9
200 0
200 1
200 2
200 3
200 4
200 5
200 6
200 7
200 8
200 9
201 0
201 1
201 2
201 3
201 4
201 5
201 6
201 7
201 8e
201 9e
top location s region al cen tres new office spa ce 199 8-2007 200 8-2017
Source: BulwienGesa, DZ BANK Research forecasts Source: BulwienGesa

2018 | 2019
Number of office workers growing much faster than office space
The top locations in particular are proving to be engines of growth, and, in spite of high Fast growing economy in the top
rents, they stand out as attractive locations for companies. They score points in view locations leading to a sharp rise in
of outstanding transport links not only with other German cities, but also by making big the workforce
international cities easily accessible – often via direct flights. In addition, there are big
labour markets. The cities in question are also attractive with a broad range of leisure
and cultural activities on offer. On balance, the strong momentum in the labour markets
can easily absorb the rising labour force potential. In spite of a sharp rise in the number
of inhabitants, unemployment rates in all the top locations are falling. This applies
above all to Berlin, where the unemployment rate has fallen from a high of 19 per cent
in 2005 to around 8 per cent in July 2018.
SO FAR, GERMAN LABOUR MARKET SHOWS NO SIGNS OF FATIGUE OFFICE EMPLOYMENT GROWING MUCH FASTER THAN OFFICE SPACE
IN ALL THE TOP LOCATIONS
46 13 2, 6 85
45 12 2, 5 82
44 2, 4 79
11
43 2, 3 76
42 10 2, 2 73
41 9 2, 1 70
40 8 2, 0 67
39 1, 9 64
7
38 1, 8 61
37 6
1, 7 58
36 5 1, 6 55
199 2
199 3
199 4
199 5
199 6
199 7
199 8
199 9
200 0
200 1
200 2
200 3
200 4
200 5
200 6
200 7
200 8
200 9
201 0
201 1
201 2
201 3
201 4
201 5
201 6
201 7
201 8
199 2
199 4
199 6
199 8
200 0
200 2
200 4
200 6
200 8
201 0
201 2
201 4
201 6
201 8e
l abou r force i n mi ll i on person s (l h s) offi ce workers in mi ll ion person s (l h s)
u ne mploymen t rate i n % (l hs) offi ce space i n mi li on sqm (rh s)
Source: Bundesbank, Bundesagentur für Arbeit Source: BulwienGesa, Feri, DZ BANK Research forecasts
Whereas offices space in the top locations has only increased at a muted space for Office work in top locations has
some time, the number of office workers has risen sharply. Within the space of ten grown four times as fast as office
years, their numbers have swelled by around 500,000 to 2.4 million í an increase of space since 2007
almost 25 per cent, whereas the amount of office space in the top locations has only
grown by 6 per cent to around 80 million sqm. Whereas office workers had almost
40 sqm of space in 2006, that figure is now down to just under 33 sqm. Berlin is the
biggest office location in Germany with around 19 million sqm, ahead of Hamburg and
Munich which each have around 14 million sqm. Frankfurt only has just under
10 million sqm. Dusseldorf, Cologne and Stuttgart each have not quite 8 million sqm.
The situation in the office markets is likely to remain tight for the time being. Although No sign of any lasting easing in
the construction of new office projects has picked up, in view of the existing scarcity of the office market
space and likely further rise in the number of white collar workers, there is no sign of
any lasting improvement on the horizon. Demand for office space would be even
higher if it were not dampened by a shortage of qualified labour. The number of
advertised vacancies in Germany has almost doubled in the space of ten years to
800,000 most recently.
2018 | 2019
RECENTLY WEAKER EXPECTATIONS RECOVERED SIGNIFICANTLY ECONOMIC SITUATION STILL RATED AS QUITE GOOD, BUT
IN AUGUST EXPECTATIONS HAVE DETERIORATED
IFO BUSINESS CLIMATE: 2015 = 100, SEASONALLY ADJUSTED ZEW INDEX: BALANCE OF POSITIVE AND NEGATIVE ASSESSMENTS
115 100
110 80
105 60
40
100
20
95
0
90 -20
85 -40
80 -60
75 -80
70 -100
200 0
200 1
200 2
200 3
200 4
200 5
200 6
200 7
200 8
200 9
201 0
201 1
201 2
201 3
201 4
201 5
201 6
201 7
201 8
200 0
200 1
200 2
200 3
200 4
200 5
200 6
200 7
200 8
200 9
201 0
201 1
201 2
201 3
201 4
201 5
201 6
201 7
201 8
expectati ons i fo bu sin ess cl im ate busi ne ss c on dition s economic sen timent economic situation
Source: ifo Institute Source: ZEW
So far, there are no signs of any end to job growth. However, the pace could slow Companies upbeat about their
down if companies adopt a more cautious attitude in view of an increase in the number present situation, but expectations
of international crises such as the US trade dispute, Brexit or the tense situation in the show growing doubts
Middle East. This is also reflected in the assessments of companies and economic
experts surveyed by the ifo Institute and the Zentrum für Europäische Wirtschafts-
forschung (ZEW). Whereas the situation of companies and the state of the German
economy are still rated as good, expectations have declined considerably. This also
fits in with a slower though still solid GDP trend, which grew by 0.5 per cent in Q2
against the previous quarter (Q1 2018 0.4 per cent). In contrast, the DAX30 is trading
well below the 13,500 or so points which the index reached at the beginning of 2018.
WHEREAS THE GERMAN ECONOMY IS STILL PURRING IN SPITE OF …SHARES PRICES OF COMPANIES LISTED IN THE DAX30 HAVE
MANY FLASH POINTS… FALLEN SHARPLY SINCE THE BEGINNING OF THE YEAR
REAL GDP VS. PREVIOUS QUARTER (%) DAX30 IN POINTS
1, 1 13. 800
1, 0 1, 0
0, 9 13. 600
13. 400
13. 200
0, 6 0, 6 0, 6 0, 6 0, 5
13. 000
0, 4 0, 5
0, 4 0, 4 0, 4 12. 800
0, 3
0, 2 12. 600
12. 400
12. 200
12. 000
-0, 1
-0, 1 11. 800
11. 600
Q1 201 4
Q2 201 4
Q3 201 4
Q4 201 4
Q1 201 5
Q2 201 5
Q3 201 5
Q4 201 5
Q1 201 6
Q2 201 6
Q3 201 6
Q4 201 6
Q1 201 7
Q2 201 7
Q3 201 7
Q4 201 7
Q1 201 8
Q2 201 8
08/201 7
09/201 7
10/201 7
11/201 7
12/201 7
01/201 8
02/201 8
03/201 8
04/201 8
05/201 8
06/201 8
07/201 8
08/201 8
Source: Federal Statistical Office Source: Deutsche Börse
All in all, the office market has done well in what have been generally positive Office market did well in
conditions. This was clear from a high office take-up figure last year and in H1 2018, 2017 against robust economic
and from a rise in prime rents. Whereas the reason for the increase in prime rents is background
obvious in view of the scarcity of available space and high demand, it is slightly
surprising that office space take-up still hit a new record in 2017.
2018 | 2019
In all in 2017, 3.9 million sqm of office space was transacted, which, in relation to the New record office uptake hit in 2017,
existing space represents a new record. The highest level reached previously was in which would have been even higher
the year 2000 at 4.8 per cent; in 2017, the figure was in fact 0.1 percentage points without the shortage of space
higher. In spite of a further decline in the supply of office space, there was another
substantial take-up in H1 2018. At over 1.6 million sqm, it was only marginally down
on the figure in H1 2017.
The high volume can also be explained in light of the fact that a large number of Letting activities increasingly
large-scale contracts involve newly built office space which will only be completed in moving to new-build projects
a few years' time. In contrast, such large letting transactions are now hardly possible
from the existing stock. For that reason, sourcing new office space can definitely take
several years of planning until completion. However, this also means that companies
with short-term space requirements are sometimes forced to defer or even shelve their
plans.
OFFICE SPACE TAKE-UP CLIMBED TO NEW RECORD IN 2017 IN SPITE ALMOST 5% OF OFFICE SPACE CHANGED TENANT IN 2017
OF TIGHT SUPPLY OFFICE SPACE TAKE-UP AS % OF STOCK
OFFICE SPACE TAKE-UP IN '000 SQM
4. 000 5,5
second ha lf of th e year 5,0
3. 500 first ha lf of th e yea r
4,5
3. 000
4,0
2. 500 3,5
2. 000 3,0
2,5
1. 500
2,0
1. 000
1,5
500 1,0
199 7
199 8
199 9
200 0
200 1
200 2
200 3
200 4
200 5
200 6
200 7
200 8
200 9
201 0
201 1
201 2
201 3
201 4
201 5
201 6
201 7
0
199 2
199 3
199 4
199 5
199 6
199 7
199 8
199 9
200 0
200 1
200 2
200 3
200 4
200 5
200 6
200 7
200 8
200 9
201 0
201 1
201 2
201 3
201 4
201 5
201 6
201 7
201 8
top locatio ns regi onal ce ntr es
Source: BulwienGesa Source: BulwienGesa, DZ BANK Research forecasts
Flexible office space for rent for coworking purposes benefiting from
shortage of stock
Sometimes, companies are also forced to opt for coworking spaces which are Boom in flexible offices, not least
increasingly being offered in top locations. Within the space of just a few years, the because it makes up for part of the
proportion of such space in relation to the total office stock has grown from close to unmet demand for office space
zero to over 5 per cent. It is precisely the shortage of quickly available office space
which is a major factor in the strong growth of this still relatively new offer of flexible
office space for rent, which was originally targeted mainly at start-ups and freelance
workers. Although the latter are also an important customer segment, the coworking
boom is now being driven mainly by demand from established companies, requiring
temporary space, for expansion plans for example, but which fail to find suitable
premises.
Companies offering coworking space benefit from the need for office space which al- Flexible workspace quickly likely to
lows them to let fully equipped and fitted modern office units at a significant premium rise to almost 80,000 fully equipped
in relation to letting empty office space. In addition to the office fittings, this will also spaces
include various services, whether they are actually needed by each coworking tenant
or not. According to figures from Jones Lang Lasalle, almost 80,000 flexible work-
spaces are expected to be available soon over 750,000 sqm at already up-and-running
or firmly planned coworking locations. We dedicate a separate section from page 7 to
a description of this specific form of sub-letting of office space.
2018 | 2019
CONSISTENT RISE IN PRIME RENTS SINCE 2011 BERLIN OFFICE MARKET ABOVE ALL CONTRIBUTED TO A SHARP IN-
CREASE IN PRIME RENTS IN 2016 AND 2017
PRIME RENT IN EURO PER SQM PRIME RENTS VS. PREVIOUS YEAR (%)
35 8
30 6
4
25
2
20
0
15
-2
10
-4
5 -6
0 -8
199 9
200 0
200 1
200 2
200 3
200 4
200 5
200 6
200 7
200 8
200 9
201 0
201 1
201 2
201 3
201 4
201 5
201 6
201 7
201 8e
201 9e
200 4
200 5
200 6
200 7
200 8
200 9
201 0
201 1
201 2
201 3
201 4
201 5
201 6
201 7
201 8e
201 9e
top locatio ns regi onal ce ntr es top locatio ns regi onal ce ntr es
Source: BulwienGesa, DZ BANK Research forecasts Source: BulwienGesa, DZ BANK Research forecasts
In view of a robust labour market and further GDP growth, demand for office space is Demand for office space could fall
likely to continue to grow. However, demand for office space in the next few years will when baby boomers retire
not only depend on the state of the economy; it will also be influenced by other factors.
Demographics and digitalisation in the world of work are also likely to play a part. The
first of the baby boomers will be reaching retirement age at the beginning of the next
decade, thus weakening labour workforce participation. However, the impact can be
mitigated by postponing retirement age, higher workforce participation by women or
through immigration.
One as yet unanswered question is how increasingly smart technology will impact on Will the future world of work involve
demand for office space. A sharp rise in working from home could lead to a fall in working from home or working in the
demand for workspace in offices. As a result, companies and public-sector employers office?
would save on the cost of office space, and a reduction in the number of commuters
would ease the burden on public transport infrastructure. Even the housing markets in
conurbations could benefit from such a trend. However, it is also possible that pres-
ence in the office will remain the norm in day-to-day working life. At least this is the
path adopted by the big names in digitalisation such as Apple, Facebook or Google,
which have sprawling campuses as their head office in Cupertino, Palo Alto and
MountainView where they try to make office work as attractive as possible to their staff
by offering them first-class staff restaurants, gyms, etc.
Office: comparison of top locations
The attraction of top locations for companies described earlier has led to a sharp rise White-collar work is increasing
in the number of office workers in all seven locations. The increases within the space much faster than office space in all
of ten years range from just over 15 per cent in Frankfurt to over 30 per cent in Berlin. the top locations
In contrast, office space at the top locations has grown much more slowly. During the
same period, the increase was within a range of 4 per cent in Frankfurt to not quite
9 per cent in Hamburg.
However, ten years ago, there was nothing of the present urgency to build office space. Office vacancy rate down from 7 to 3
Back then, there was almost 7 million sqm of vacant office space, and therefore million sqm in the space of ten years
demand could easily be met from the existing stock. However, job growth picked up
with the economic upturn which began in 2010 and is ongoing, leading to a rise in
demand for office space. However, there was only a marginal increase in new building.
2018 | 2019
Even the fact that rents started picking up again failed to lead to a stronger upturn.
Consequently, the amount of vacant space continued to dwindle to 3 million sqm by
the end of Q2 2018.
OFFICE WORK INCREASING MUCH FASTER THAN OFFICE SPACE IN … LEADING TO A VERY RAPID FALL IN THE HIGH LEVEL OF VACANT
ALL TOP LOCATIONS,… SPACE OF A FEW YEARS AGO
INCREASE FROM 2007 TO 2017 (%) VACANCY RATE (%)
35 20
18
30
16
25 2007
14
2018e
20 12
10
15
8
10
6
5 4
0 2
B erli n Dussel- F ran k- H am- Col ogn e M u ni ch Stu tt- Top-7 0
dorf furt burg gart B erli n Dussel- Fran k- H am- Col ogn e Mu ni ch Stu tt- Top-7
offi ce space offi ce workers dorf furt burg gart
Source: BulwienGesa, Feri Source: BulwienGesa, DZ BANK Research forecasts
Frankfurt accounts for almost two thirds of the vacant space at 865,000 sqm along Hardly any vacant office space
with Dusseldorf and Hamburg with around 550,000 sqm respectively. With vacancy left in Berlin, Cologne, Munich and
rates of 4 per cent in Hamburg, 7.2 per cent in Dusseldorf and 8.5 per cent in Frankfurt, Stuttgart
the supply of office space is still relatively good in those cities. Things are not looking
quite so good for anyone looking for space to rent in Stuttgart which has 170,000 sqm
of vacant office space, in Cologne or Munich which each have around 260,000 sqm or
Berlin with 360,000 sqm. In the case of the latter, moreover, the space is distributed
over the entire city and consists to a large extent of older and less attractive space.
The vacancy rate is 2 per cent in Berlin, Munich and Stuttgart and up to just over 3 per
cent in Cologne.
BERLIN, FRANKFURT AND MUNICH TOP THE RANKINGS FOR OFFICE DYNAMIC LABOUR MARKETS: IN SPITE OF STRONG POPULATION IN-
SPACE TAKE-UP FLUX, UNEMPLOYMENT DOWN IN ALL TOP LOCATIONS
OFFICE SPACE TAKE-UP AS % OF OFFICE STOCK UNEMPLOYMENT RATE (%)
7 20
2017
18 B erli n
6
Dusseldorf
5 2007 16
F ran kfu rt
4 14 H ambu rg
12 Col ogn e
3
M u ni ch
10
2 Stu ttgart
8
1
6
0
B erli n Dussel- F ran k- H am- Col ogn e Mu ni ch Stu tt- Top-7 4
dorf furt burg gart 199 8 200 2 200 6 201 0 201 4 201 8e
Source: BulwienGesa Source: BulwienGesa, DZ BANK Research forecasts
In spite of a shrunken supply of office space, office space take-up was very high in Office take-up in Berlin
some cases. Take-up in Berlin in 2017 amounted to over 5 per cent of the existing exceeds 1 million sqm
office space; the figure in Frankfurt was even above 6 per cent. Berlin was the first
German office market to reach a take-up of over 1 million sqm. It was followed by
2018 | 2019
Munich at 750,000 sqm ahead of Hamburg and Frankfurt with around 630,000
respectively. Take-up in the three other locations – Dusseldorf, Cologne and Stuttgart
– was around 300,000 sqm in 2017.
OFFICE RENTS HAVE MOSTLY RISEN MODERATELY THE ONLY SHARP INCREASE IN PRIME RENTS HAS BEEN IN BERLIN
OFFICE PRIME RENTS IN EURO PER SQM INCREASE IN PRIME OFFICE RENTS FROM 2007 TO 2017 (%)
50 40
B erli n
45 Dusseldorf
40 Fran kfu rt 30
H ambu rg
35
Col ogn e 22
21
30 M u ni ch 18
25 Stu ttgart
Top-7 11
10
20
5
15
10
199 3
199 5
199 7
199 9
200 1
200 3
200 5
200 7
200 9
201 1
201 3
201 5
201 7
201 9e
Col ogn e Fran k- Dussel- H am- Top-7 Mu ni ch Stu tt- B erli n

furt dorf burg gart
Source: BulwienGesa, DZ BANK Research forecast Source: BulwienGesa, DZ BANK Research forecast
High demand for space and tight supply have led to an increase in prime rents in the Favourable market conditions and
last ten years. However, bearing in mind a humming economy and strong job growth, tight supply not leading to any spike
the increase in rents has not been that high. On average, prime rents for the top seven in prime rents
locations rose by 21 per cent to around EUR 30 per sqm in the period from 2007 to
2017 í admittedly quite a significant increase, but not a dramatic one. The increase in
prime rents in Cologne, Frankfurt and Dusseldorf was in fact rather modest at 5, 10
and 11 per cent respectively. The trend in Hamburg and Munich was largely in line
with the average. Only Berlin and Stuttgart outperformed with an increase of 30 and
40 per cent respectively. At the half-way stage in 2018, prime rents per sqm fluctuated
within a range of EUR 21.50 in Cologne to EUR 39 in Frankfurt.
What next for the office market? If the current upward cycle remains intact in 2019 as Trend in the office market
well, in line with forecasts, which would mean a ten-year cycle, the situation in the likely to continue to be influenced by
office market is likely to remain largely unchanged this year and next, with lively shortage of available space
demand, resulting from further job growth met by a shortage of office space. This
means that further rising prime rents are likely. However, we do not expect any sharp
increases in the market as a whole. The reason for this is that, given imponderables
surrounding many international flashpoints, and the fact that the economic cycle is
already at an advanced stage, companies are likely to think long and hard before
entering into any expensive long-term tenancy agreements. The level of take-up is
rather unlikely to hit new records in view of a growing shortage of available space.
2018 | 2019
Top locations by European comparison
Jones Lang Lasalle's Office Property Clock for Q2 2018 shows at a glance the pleasing Like in the rest of Europe, office
trend in the European office market. At present, the majority of European office rents are rising, but no longer quite
locations are in quadrants representing slower rent rises. A number of European office so fast
markets even show an accelerated rise in rents. In contrast, the right-hand scale of the
Office Property Clock which represents falling or stagnating rents is virtually swept
clean with just one location. This picture of the situation in the office markets is in line
with the trend in the European economy which is still growing although it has lost some
of its momentum. The fall in unemployment in many European countries is likely to
continue to drive solid demand for office space.
In relation to the rest of the European office market, German prime rents are middling. German prime office rents average
Even Frankfurt as the most expensive office market in Germany fails to make it into in relation to the rest of Europe
the top ranked European office locations with prime rents of above EUR 50 per sqm.
However, the German office market is not concentrated in just one central location,
unlike in many European countries where the marked tends to be based in and around
the capital.
PRIME OFFICE RENTS IN EUROPE – GERMAN OFFICE LOCATIONS MIDDLING

EURO PER MONTH PER SQM
120
100
80
60
40
20
Source: BNP Real Estate As per Q4 2017

2018 | 2019
Office space in Berlin
PRIME RENTS FOR OFFICE SPACE YOY % CHANGE VACANCY RATE (%)
35 12
30 10
25
8
20
6
15
4
10
5 2
0 0
200 3 200 5 200 7 200 9 201 1 201 3 201 5 201 7 201 9e 200 3 200 5 200 7 200 9 201 1 201 3 201 5 201 7 201 9e
B erli n Top-7 Region al-1 2 B erli n Top-7 Region al-1 2
Source: BulwienGesa, DZ BANK Research forecasts Source: Feri, DZ BANK Research forecasts
There has been a lasting economic improvement in Berlin. This is evident from a Ongoing upturn means that Berlin is
steady decline in unemployment which has fallen from over 19 per cent in 2005 to running out of office space
8 per cent at present. Germany's capital is now a sought-after location for e-commerce
businesses and fintechs, as well as for established companies. This has led to the
creation of around 150,000 office jobs within the space of ten years. Meanwhile, the
office stock has increased by less than 1 million sqm, whereas many times that amount
would have been needed. Ongoing demand for space has led to a growing shortage
of office space and to a fall in the vacancy rate to around 2 per cent. Prime rents have
risen from EUR 20 in 2010 to EUR 32.50 per sqm most recently. A high level of market
activity means that Berlin was the first top location to generate a take-up of over
1 million sqm. Zalando accounts for almost one tenth of this, showing just what fertile
ground the capital is for digital business models. H1 2018 was close to the previous-
year period with a take-up of almost 400,000 sqm, although the number of major com-
pletions was more modest. As such, the signs are that 2018 will be another strong
year for the Berlin office market, which is fairly amazing, bearing in mind the fact that
there is virtually no vacant office space left. As in the other top locations, coworking
providers were also well represented in Berlin among the top 10 biggest tenancy
transactions. The supply shortage should ease slightly by the end of next year on the
back of a fairly high amount of new space coming onto the market, and help slow down
the momentum in the rise in prime rents, which should then reach around EUR 34 per
sqm.
OFFICE SPACE IN BERLIN
2016 2017 2018e 2019e

Demand
GDP % yoy 4.1 4.0 3.2 3.4
Per capita GDP in EUR 32,072 32,976 33,794 34,744
Per capita GDP % yoy 568.8 576.5 584.7 592.8
No. of office workers % yoy 4.9 1.4 1.4 1.4
Supply
Total office space in sqm '000 18,932 18,949 19,173 19,534
Total office space % yoy 0.0 0.1 1.2 1.9
Vacancy rate % 3.0 2.2 1.8 2.0
Office rents
Prime/secondary location EUR/sqm 28.0 / 11.0 30.0 / 12.0 32.7 / 12.5 34.0 / 12.5

2018 | 2019
Office space in Cologne
35 12
30 10
25
8
20
6
15
4
10
5 2
0 0
200 3 200 5 200 7 200 9 201 1 201 3 201 5 201 7 201 9e 200 3 200 5 200 7 200 9 201 1 201 3 201 5 201 7 201 9e
Col ogn e Top-7 Region al-1 2 Col ogn e Top-7 Region al-1 2
The 20 per cent decline in office space take-up to 307,000 in 2017 reflects one of the Shortage of attractive office space
best ever results in the Cologne office market the previous year when take-up was in the city slowing down increase in
boosted by 60,000 of newly built office space with the new Zurich Versicherung build- prime rents
ing. There were two big transactions in 2017: the Bundesamt für Familie und zivil-
gesellschaftliche Aufgaben rented 19,000 sqm and Strabag Real Estate 15,000 sqm.
This was followed in third place with a deal of over 9,000 sqm by Design Offices which
offers coworking space. In spite of lively demand and a shortage of space – the
vacancy rate fell to 4 per cent – prime rents are still at the level of 2013 of EUR 21 per
sqm. Since there is hardly any high-quality vacant space left in the city, it is difficult to
pull off any high-price deals. The shortage of space also seems to be preventing larger
transactions: the biggest deal registered in H1 was for 6,000 sqm. Coworking is still
prominent with Design Offices once again in third place with an agreement for
5,600 sqm. In light of this, take-up in H1 was by no means low, but the full-year figure
in unlikely to match last year's strong level. The fact that prime rents have reached
EUR 21.50 sqm points to lively demand and this is likely to remain the case until the
end of the year. There is definitely the kind of demand which would lead to a similar
increase next year. However, it remains to be seen whether the necessary space will
be available. There is no improvement in sight since the vacancy rate is likely to be
moving towards 3 per cent by the end of 2019.
OFFICE SPACE IN COLOGNE
2016 2017 2018e 2019e

Demand
GDP % yoy 3.0 3.4 3.0 3.2
Supply
Vacancy rate % 5.6 4.0 3.5 3.2
Office rents

2018 | 2019
Office space in Dusseldorf
35 12
30 10
25
8
20
6
15
4
10
5 2
0 0
200 3 200 5 200 7 200 9 201 1 201 3 201 5 201 7 201 9e 200 3 200 5 200 7 200 9 201 1 201 3 201 5 201 7 201 9e
Dusseldorf Top-7 Region al-1 2 Dusseldorf Top-7 Region al-1 2
Dusseldorf's economic strength and its function as the state capital has led to the Signs of a solid, but not record-
development of a significant office market of 7.5 million sqm. Although it is the same breaking take-up In Dusseldorf
size as the Cologne and Frankfurt markets, occupier activity is mostly higher as
measured by office space take-up. In 2017, take-up of 325,000 sqm was also exactly
in line with the ten-year average. Of the three biggest transactions of over 10,000 sqm,
the financial sector accounted for two and the third was with the Berufsgenossenschaft
Holz und Metall. In H1 2018, a 35,500 sqm transaction involving Deloitte helped bring
office take-up to slightly over 170,000 sqm, which is largely in line with the level in the
last three years. All the other transactions were for a maximum of 5,000 sqm. Two
larger deals – of 4,100 sqm for Regus and 3,500 sqm for rent24 – were with providers
of coworking space. After falling to just over 7 per cent in 2017, the vacancy rate has
remained largely stable, but could rise slightly in H2 in view of space being freed up
by the Uniper move. A further slight decline in the vacancy rate is likely in 2019 since,
once again, there will not be all that much new space coming onto the market is (just
under 90,000 sqm against 70,000 sqm in 2017 and 2018). Prime rents of EUR 24.50
per sqm have been stable since the beginning of 2017. In view of lively demand for
office space, an increase of 2 per cent is possible by the end of the year. There could
be a similar rise in 2019, if conditions in the German office market remain favourable.
OFFICE SPACE IN DUSSELDORF
2016 2017 2018e 2019e

Demand
GDP % yoy 3.5 3.9 3.6 3.7
Supply
Vacancy rate % 8.3 7.1 7.3 7.1
Office rents

2018 | 2019
Office space in Frankfurt
45 20
40 18
35 16
14
30
12
25
10
20
8
15
6
10 4
5 2
0 0
200 3 200 5 200 7 200 9 201 1 201 3 201 5 201 7 201 9e 200 3 200 5 200 7 200 9 201 1 201 3 201 5 201 7 201 9e
F ran kfu rt Top-7 Region al-1 2 Fran kfu rt Top-7 Region al-1 2
After two rather poor years, Germany's most expensive office market picked up After a period of weakness,
considerable speed in 2016. Take-up rose by over 30 per cent to around 460,000 sqm. Frankfurt's office market is
Last year, things looked even better with the second best figure since the dotcom boom now surging
at 624,000 sqm. This was helped by major transactions from Deutsche Bahn for
70,000 sqm and the Bundesbank for 44,000 sqm. Germany's central bank is taking
over the FBC Tower near the central station as temporary accommodation during a
complete refurbishment of its headquarters in Frankfurt-Ginnheim. The market has
been bolstered among other things by favourable economic conditions in the Rhine-
Main area, by Brexit-led moves to the city and the creation of coworking offers, includ-
ing the take-up of 10,000 sqm by WeWork. These factors are likely to help the market
to another good result in 2018. The biggest deal in H1 involved a 24,000 sqm take-up
by FAZ, which is planning to move its headquarters to the Europaviertel in 2021. There
have also been fairly substantial deals involving coworking space. On balance
take-up in H1 is one of the best ever for a half-year at over 240,000 sqm. High demand
has pushed up prime rents to EUR 39 per sqm and they could rise further by the end
of the year. The vacancy rate is likely to fall from over 9 per cent last year towards the
8 per cent mark. Next year, we are confident prime rents will jump over the EUR 40
per sqm mark on the back of a further reduction in vacant space.
OFFICE SPACE IN FRANKFURT
2016 2017 2018e 2019e

Demand
GDP % yoy 3.2 3.5 3.2 3.3
Supply
Total office space % yoy -0.4 -0.8 0.4 1.1
Vacancy rate % 10.7 9.3 8.3 7.8
Office rents

2018 | 2019
Office space in Hamburg
35 12
30 10
25
8
20
6
15
4
10
5 2
0 0
200 3 200 5 200 7 200 9 201 1 201 3 201 5 201 7 201 9e 200 3 200 5 200 7 200 9 201 1 201 3 201 5 201 7 201 9e
H ambu rg Top-7 Region al-1 2 H ambu rg Top-7 Region al-1 2
The uptrend in the Hamburg office market has continued. High demand in 2017 with Upturn in Hamburg office market
take-up of 635,000 sqm beat the previous record from 2007. Two major transactions made 2017 a record year
of over 34,000 sqm each involving Olympus and Gruner + Jahr contributed. The
favourable trend has gone hand-in-hand with a moderate though steady rise in prime
rents, which reached EUR 26.50 in 2017. The increase would probably have been
even more had it not been for a relatively high level of new building, e.g. in HafenCity.
Even so, available space has become tighter, leading to a more than 50 per cent
reduction in the vacancy rate since 2010. The market is being buoyed by further
favourable economic conditions and Hamburg's broadly diversified economy.
Examples of this are an important logistics sector in Europe's third largest sea port and
the aircraft industry which is benefiting from growing aviation business worldwide. The
success story of Hamburg's office market is likely to continue in 2018, albeit a new
record is not on the cards since there have been no major transactions of over
10,000 sqm so far – apart from one tenancy agreement with Iduna -Versicherung for
10,000 sqm. Bearing this fact in mind, take-up of over 240,000 sqm in H1 was
impressive. Although prime rents are unchanged so far against 2017, they could
increase to EUR 27 per sqm by year end. The vacancy rate is likely to fall to under
4 per cent. A further increase in prime rent and further reduction in the vacancy rate is
likely in 2019, as economic conditions are expected to remain favourable.
OFFICE SPACE IN HAMBURG
2016 2017 2018e 2019e

Demand
GDP % yoy 2.6 4.2 3.2 3.4
Supply
Total office space % yoy 1.1 -0.1 0.6 0.8
Vacancy rate % 5.3 4.5 3.8 3.5
Office rents

2018 | 2019
Office space in Munich
PRIME RENTS YOY % CHANGE VACANCY RATE (%)
40 12
35
10
30
8
25
20 6
15
4
10
2
5
0 0
200 3 200 5 200 7 200 9 201 1 201 3 201 5 201 7 201 9e 200 3 200 5 200 7 200 9 201 1 201 3 201 5 201 7 201 9e
M u ni ch Top-7 Region al-1 2 M u ni ch Top-7 Region al-1 2
Munich's broadly diversified economy is flourishing í it is home six DAX listed group High-quality space practically only
headquarters í leading to the creation of many new jobs, with which a muted level of to be found in new-build projects, so
new office building has long since failed to keep pace. This has led to a vacancy rate prospective occupiers have to be
which is now below 2 per cent, as a result of which it is becoming increasingly difficult resigned to a long wait
to rent larger amounts of office space from the existing stock. For this reason, it is
hardly surprising that almost all big transactions involve new-build projects. Even so,
given the shortage of space, it is astonishing, that office space take-up last year still
reached a new record of 750,000 sqm. BMW alone accounted for one fifth of this, while
the public sector rented almost 70,000 sqm of space. Even the emerging coworking
sector is well represented. Prime rents climbed by almost 4 per cent to EUR 36 per
sqm, and 2018 is following on seamlessly from last year with many large transactions:
the first six months of the year saw the biggest office take-up so far at 380,000 sqm.
Once again, the public sector was strongly represented. Coworking providers Design
Offices and WeWork also took up large amounts of space. Prime rents rose by a
further EUR 0.50 per sqm as available office space continued to dwindle. Prime rents
are likely to rise by a good 3 per cent this year and next, leading to an estimated EUR
38 per sqm by the end of 2019. Although a relatively high level of new space coming
onto the market will slow down the decline in the vacancy rate, this is unlikely to be
enough to overcome the widespread shortage of office space in Munich.
OFFICE SPACE IN MUNICH
2016 2017 2018e 2019e

Demand
GDP % yoy 3.5 3.9 3.6 3.7
Supply
Vacancy rate % 2.7 2.0 1.7 1.5
Office rents

2018 | 2019
Office space in Stuttgart
35 12
30 10
25
8
20
6
15
4
10
5 2
0 0
200 3 200 5 200 7 200 9 201 1 201 3 201 5 201 7 201 9e 200 3 200 5 200 7 200 9 201 1 201 3 201 5 201 7 201 9e
Stu ttgart Top-7 Region al-1 2 Stu ttgart Top-7 Region al-1 2
High time too: last year, rents for prime office space in Stuttgart passed the EUR 20 Tight supply limiting office space
per sqm mark for the first time – and by quite a long way! A rise to EUR 21.40 per sqm take-up and driving prime rents up
means an increase in the top one-digit percentage bracket, as in Berlin and Frankfurt. sharply
The sharp rise is likely to reflect the almost complete lack of available office space and
a greater willingness by tenants to pay more. A reduction in the vacancy rate to just
above 2 per cent – equating to 170,000 sqm across the entire office market – means
a limited choice for prospective occupiers. This is especially true of larger, intercon-
necting spaces. It is therefore hardly surprising that the two big transactions for over
10,000 sqm of office space – the tenants are Daimler and CMS Hasche Sigle – involve
new developments. The sharp rise in rents in 2017 went hand-in-hand with take-up of
264,000 sqm í high by Stuttgart standards. Given the demand, a higher figure would
have been possible if there been a more ample supply. It is a similar story this year:
without the 50,000 sqm Bosch new office building, office take-up up to June 2018
would only have been half last year's level at around 120,000 sqm, and therefore very
low. The figure still includes a deal of around 11,000 sqm involving Landesbetriebe
Vermögen und Bau. In spite of slightly more new office space coming onto the market
by the end of 2019, there is no sign of any radical improvement in the shortage of
space. The vacancy rate should remain stable while prime rents could increase up to
EUR 22.50.
OFFICE SPACE IN STUTTGART
2016 2017 2018e 2019e

Demand
GDP % yoy 3.2 3.5 3.2 3.3
Supply
Vacancy rate % 2.9 2.1 2.1 2.2
Office rents

2018 | 2019
HOUSING MARKET
The housing market in top locations is still very tight. Even though new housing Even the increase in newly built
construction has now got into gear, there is still a shortage of accommodation, as housing stock is failing to keep pace
illustrated by figures on population growth and completed housing units. In the past with population growth
ten years, the population in the top seven locations has increased by between 7 per
cent in Dusseldorf and 15 per cent in Frankfurt. Consequently, around 1 million more
people leave in these cities than did back in 2007. This is equivalent to the city of
Cologne which has one million inhabitants and 550,000 flats. In fact, however, only a
total of 286,000 flats have been completed in the last ten years in the top locations. In
addition, the gap between supply and demand in the housing market is not dwindling
in any way; it just keeps on growing.
In 2017, 44,000 flats were built in the top locations í double the number ten years Number of households growing
previously. However, this is nowhere near the 80,000 unit increase in the number of faster than supply of housing
households as a measure of housing needs. On this basis, an aggregated housing
shortage of around 300,000 homes has been building up since 2007. However, it is
very difficult to say whether this is the true scale of the demand or not. After all, those
living in top locations have come to terms with the shortage of living space and
compromised, otherwise there would be thousands of homeless people in these cities.
POPULATION GROWING IN ALL TOP LOCATIONS, BUT PACE VARIES NUMBER OF NEW HOUSEHOLDS IN TOP LOCATIONS TWO TO THREE
POPULATION GROWTH FROM 2007 TO 2017 TIMES GREATER THAN NUMBER OF NEW HOMES BUILT SINCE 2007
INCREASE IN HOUSEHOLDS VS. NEW HOMES FROM 2007 TO 2017
15 14 223
11 10 10
7 8
362 131
108
77
64 56 64 61
17 6 40
26 29 30
13 6 14 18
99 97
39 60
B erli n Dussel- Fran k- H am- Col ogn e M u ni ch Stu tt-
B erli n Dusseldorf Fran k- H am- Col ogn e Mu ni ch Stu ttgart dorf furt burg gart
furt burg
growth of in divi du al h ouseh olds i n thou sa nd
i n thou san d person s in % cu mu la ti ve dwel li ng completi on s i n thou sa nd
Source: Feri Source: Feri, Statistische Ämter von Städten und Bundesländern
Not one of the top locations has managed to match the increase in households with a Not one of the top locations
corresponding number of new homes with the exception of Dusseldorf where the gap has reached an adequate level of
is fairly small. The biggest gap by far is in Berlin where the number of households has housing completions to meet the
increased almost three times as fast as new completions; in the other top locations, it demand
has only increased twice as fast. However, housing construction in some of the cities
under consideration, e.g. in Berlin and Hamburg, has picked up quite significantly.
The number of housing completions in Berlin has almost quadrupled to 16,000; in New building in Berlin and
Hamburg, housing construction has doubled to 8,000 units. Is this sufficient to bridge Hamburg has picked up significantly
the gap gradually? Unfortunately not since the big increases mainly reflect a low start- from a low level
ing point. In reality, housing construction in relation to the number of inhabitants in
Berlin and Hamburg is fairly average at around 4 units per 1,000 inhabitants. Frankfurt
and Munich have shown that a much higher level of new housing construction is
possible. Around 6 new housing units per 1,000 inhabitants have been built since 2017
in each of these two cities. This is especially remarkable in Munich since building land
2018 | 2019
in Germany's cities with the highest population density is in very short supply. The fact
that there is still a housing shortage in Frankfurt and Munich in spite of relatively
abundant new building reflects particularly strong population growth.
HOUSING CONSTRUCTION UP NOTICEABLY IN BERLIN, HAMBURG … BUT MORE BUILT IN FRANKFURT AHEAD OF MUNICH IN RELATION
AND MUNICH… TO POPULATION SIZE
HOUSING COMPLETIONS HOUSING COMPLETIONS PER 1,000 INHABITANTS
180 00 7
B erli n
160 00 6
Dusseldorf
140 00
5
F ran kfu rt
120 00
H ambu rg 4
100 00
Col ogn e 3
800 0
600 0 M uni ch 2
400 0 Stu ttgart 1

200 0 0
0 B erli n Dussel- F ran k- H am- Col ogn e Mu ni ch Stu tt-
dorf furt burg gart
200 7
200 8
200 9
201 0
201 1
201 2
201 3
201 4
201 5
201 6
201 7
201 0 201 1 201 2 201 3 201 4 201 5 201 6 201 7
Source: Feri, Statistical offices of cities and federal states Source: Feri, Statistical offices of cities and federal states
In view of the shortage of homes, the press is calling almost daily for an increase in Marked increase in house building
housing construction. Although this would definitely be possible from a technical point over and above present level would
of view, it is likely to be hampered by the current process involved in designating be difficult
building land, the planning permission process and also carrying out the construction
work. If everything remains as it is at present, the current average of around 4 to 5
housing units per 1,000 inhabitants which is being completed across the seven top
locations could remain the best that can be done.
At almost 60,000 units, the number of housing completions at the end of the 1990s Construction firms building at close
was briefly well above the 44,000 units built last year. However, conditions back then to capacity
were very different. One major difficulty now is the lack of manpower and the fact that
the construction industry is now much more stretched. This is clear from the level of
capacity utilisation calculated by the ifo Institute, which is now close to 80 per cent, i.e.
15 percentage points more than 20 years ago. At the time, there were still over 3 million
people working in the labour-intensive construction industry. The figure is now down
to only 2.5 million. In addition, the process of job growth is rather sluggish. People are
no longer so keen to work on a building site, and consequently, other sectors do better
when it comes to attracting skilled labour and apprentices.
The fact that the housing construction sector still has headroom is clear from the Far more planning permissions than
growing overhang of planning permissions in relation to building completions. The gap what is actually being built
has risen to 20,000 housing units p.a. in the top locations. On an aggregated basis,
there have been planning permissions for 360,000 homes since 2010, but only
247,000 units have been built. If all the homes had been built for which there was a
planning permission, the current housing shortage would be considerably less.
However, other factors are also hampering housing construction. There is now much Lack of building land and protests
less space in cities. In 1997, the population in the top locations was around 8.8 million; hampering housing construction
today, the figure is close to ten million. Consequently, building land is becoming
increasingly scarce and opposition from residents to housing plans is mounting. Local
residents resent the fact that development generally makes the housing market more
expensive in a specific location if attractive new housing is built because of the gentry
2018 | 2019
fication effect. In addition, public services are mostly already under heavy pressure
with full buses and trains and a lack of parking along with places in schools and
childcare facilities.
COMPLETIONS IN TOP LOCATIONS LAGGING INCREASINGLY BEHIND LACK OF SKILLED LABOUR IN CONSTRUCTION AND HIGH LEVEL OF
NUMBER OF PLANNING PERMISSIONS UTILISATION OF THE CONSTRUCTION INDUSTRY
70. 000 85 3. 500

60. 000
80 3. 250
50. 000
75 3. 000
40. 000
30. 000 70 2. 750
20. 000 65 2. 500

10. 000
60 2. 250
0
55 2. 000
-10. 000
199 1
199 4
199 7
200 0
200 3
200 6
200 9
201 2
201 5
201 8
199 2
199 3
199 4
199 5
199 6
199 7
199 8
199 9
200 0
200 1
200 2
200 3
200 4
200 5
200 6
200 7
200 8
200 9
201 0
201 1
201 2
201 3
201 4
201 5
201 6
201 7
con stru cti on sector capaci ty u ti li sati on i n % , 4 Q a ve rage (l hs)

surplu s bui l di n g comple ti on s bui l di n g perm its con stru cti on sector em pl oyee s in 000s, 4Q average ( rh s)
Source: Feri, Statistical offices of cities and federal states Source: ifo Institute, Federal Statistical Office
However, protests are not just directed at the in-filling of residential areas; they are Many adjustments will have to
also directed at new town planning. However, without the latter, it will be virtually im- be made to arrive at much higher
possible to achieve the number of new homes needed. Plans to build a new town in new-build volume
the north-west of Frankfurt for example have led to a storm of protests by residents in
neighbouring communities in the Hochtaunus district. However, the construction of
urgently needed new housing is not being slowed down only by growing protests; the
fact that too little land is being designated as building land, the long-winded planning
permission process, speculation involving building plots and the technical status in the
construction sector are all hampering housing construction. Industrial production
methods and a digitalisation of building projects have so far failed to become
established across the sector.
RENTS IN MUNICH IN A CLASS OF THEIR OWN HOUSING COSTS 50% MORE EXPENSIVE IN SPACE OF TEN YEARS
AVERAGE INITIAL RENT IN EUR PER SQM AVERAGE INITIAL RENT FROM 2007 TO 2017 (%)
22 B erli n 67
64
20 Dusseldorf
55 55
F ran kfu rt 50 51
18
H ambu rg 46
16 Col ogn e
14 M u ni ch 32
12 Stu ttgart
Top-7
10
6
199 3
199 5
199 7
199 9
200 1
200 3
200 5
200 7
200 9
201 1
201 3
201 5
201 7
Col ogn e H ambu rg Stu tt- Dussel- F ran k- Top-7 M u ni ch B erli n

201 9e
gart dorf furt
Source: BulwienGesa, DZ BANK Research forecasts Source: BulwienGesa
On balance, it is unlikely that there will be any marked improvement in the already tight Tight housing markets pushing
housing market in top locations in the near future. In any case, there are no reserves up initial rents
of vacant properties left which might offer a buffer. Consequently, rents are likely to
continue to rise, even though they have already increased considerably. Average rents
2018 | 2019
for newly let or re-let properties ("initial rents") in the top locations rose by 55 per cent
to EUR 12.50 per sqm from 2007 to 2017 with the exception of Cologne where the
increase was much smaller at just over 30 per cent. Rents in Hamburg, Stuttgart,
Dusseldorf and Frankfurt have risen by around 50 per cent. The strongest rises have
been in Munich and Berlin at around 65 per cent. In Berlin, this also reflects a low
starting point. What is more impressive is the performance in Munich since rents in the
city were already well above average ten years ago. Munich residential rents have left
rents in the other top locations well behind.
At the half-way stage in 2018, average initial rents per sqm ranged from not quite EUR Average initial rents ranging
13 in Berlin, Dusseldorf and Cologne to almost EUR 19 in Munich. The figures in the from under EUR 13 to almost
other three top locations are EUR 14 in Hamburg and just under EUR 15 in Frankfurt EUR 19 per sqm
and Stuttgart. The figure for the luxury end of new apartments is far higher. Prime
properties can only be rented for under EUR 20 per sqm in Dusseldorf and Cologne.
Prices in Berlin, Frankfurt, Hamburg and Stuttgart are just above EUR 20. Once again,
Munich is in a class of its own in this respect, with rents for prime properties already
nearing the EUR 30 per sqm mark.
MARKED SLOWDOWN IN INITIAL RENT RISE IN MOST TOP LOCATIONS GAP BETWEEN RENTS FOR NEW PROPERTY AND EXISTING HOUSING
YOY % CHANGE IN AVERAGE INITIAL RENT STOCK NOW WIDENING AT A SLOWER PACE
YOY % CHANGE IN RENTS
12 10
B er li n
11 9
10 Dusseldorf
8
9
8 Fran kfu rt 7
7 6
H ambu rg
6
5
5 Col ogn e
4 4
3 Mu ni ch 3
2 2
1 Stu ttgart
1
0
-1 0
200 9
201 0
201 1
201 2
201 3
201 4
201 5
201 6
201 7
201 8
-2
201 3
201 4
201 5
201 6
201 7
201 8
first-tim e occ upan cy top-7 existin g apartmen ts top-7
Source: BulwienGesa Source: BulwienGesa
Whereas the aggregate increase in average initial rents were fairly close together over Rents rising fastest in Stuttgart
the last ten years, year-on-year rates of change have varied much more. In Dusseldorf,
Frankfurt, Hamburg and Cologne, rents are currently only rising at a moderate rate of
2 to 3 per cent p.a. The rate is slightly higher in Berlin and Munich at over 4 per cent.
However, at present, only rents in Stuttgart are rising faster with an annual increase
just in two digits.
It is also clear that the rise in rents in the majority of top locations has recently eased Recently, rents for existing
off. This applies not only to initial rents, but also to rents for existing housing stock, for properties have risen faster than
which rents still rose by over 8 per cent year-on-year in 2017. It is also interesting to initial rents
note that rents in both market segments were almost neck-and-neck from 2010
to 2016, but that a gap opened up last year. In 2017, rents for existing properties rose
much faster. One possible reason for this is the high level of rents charged for
new-build homes and an increase in completions which has increased supply at the
more expensive end of the rental market. In contrast, supply at the cheaper end of
the market, consisting of existing housing stock, is still tight.
2018 | 2019
The rise in rents in the housing market is likely to continue in all seven top locations. Forecast up to 2019: more
However, the momentum in the rental market for new builds as a whole is likely to supply and high rents likely to
ease. We anticipate an annual increase in rents this year and next of slightly over dampen increase in rents
3 per cent. There are two reasons for this: firstly, the fact that rents have already shot
up, and secondly, the fact that there has been an increase in supply. Our forecasts for
initial rents up to the end of 2019 are shown in the following table.
HOUSING FORECASTS FOR THE TOP SEVEN LOCATIONS UP TO 2019
Düssel- Frank- Ham- Stutt-

Year B erlin Co lo gne do rf furt burg M unich gart To p-7
D e m a nd
P o pulatio n in tho ausand 2017 3.591 1.085 614 739 1.817 1.465 633 9.944
5-year change in % 2012-2017 7,3 6,5 4,0 8,2 5,4 6,6 6,6 6,6
P rivate ho useho lds in tho usand 2017 2.109 596 334 413 1.052 848 343 5.695
Unemplo yment rate in % Juli 2018 8,1 7,8 6,7 5,4 6,3 3,6 4,1 6,5
Dispo sable inco me per capita in Euro 2017 20.195 22.328 26.292 22.799 25.012 28.995 25.784 23.530
S upply
Dwelling units in tho usand 2017 1.957 545 338 386 946 791 309 5.272
Co mpletio ns p.a. (5-year average) 2011-2016 2,6 3,2 2,8 4,2 3,8 4,8 3,1 3,4
per 1000 inhabitants 2016 4,4 2,0 4,6 6,6 4,4 5,7 3,4 4,4
R e nt
First-time o ccupancy, average rent 2017 12,5 12,5 12,8 15,1 13,9 18,5 14,5 14,0
in Euro /sqm 2018e 12,9 13,0 13,2 15,5 14,3 19,2 15,4 14,4
2019e 13,2 13,5 13,5 16,0 14,7 20,0 16,0 14,9
2017 4,2 4,2 1,6 2,0 3,7 8,8 11,5 5,1
yo y change in % 2018e 2,8 4,0 3,1 2,6 2,9 3,8 6,2 3,4
2019e 2,7 3,8 2,3 3,2 2,8 4,2 3,9 3,2
5-year change in % 2012-2017 25,0 13,6 9,4 24,8 7,8 37,0 38,1 22,0
First o ccupancy, maximum rent 2017 20,0 18,0 18,0 22,0 21,0 28,0 19,5 21,1
in Euro /sqm 2018e 20,8 18,0 18,5 22,5 21,7 28,8 20,5 21,8
2019e 21,6 18,5 19,0 23,0 22,3 29,5 21,3 22,5
2017 17,6 12,5 9,1 4,8 4,0 12,0 8,3 11,3
yo y change in % 2018e 4,0 0,0 2,8 2,3 3,3 2,9 5,1 3,2
2019e 3,8 2,8 2,7 2,2 2,8 2,4 3,9 3,1
5-year change in % 2012-2017 30,7 24,1 18,4 23,6 13,5 47,4 39,3 28,5
Source: BA, BulwienGesa, Feri, DZ BANK Research forecasts
It is likely to be difficult for people living in many European cities to understand the Rents in other European countries
frequent complaint by Germans that rents for flats are unaffordable. Figures which can often much higher
be downloaded from the Numbeo comparison website show that renting in German
cities is not that expensive. This is especially true if we take into account the strength
of Germany's economy.
IN SPITE OF SHARP RISE IN RENTS, RENTS IN GERMANY STILL NOT ABOVE AVERAGE IN RELATION TO OTHER EUROPEAN COUNTRIES
MONTHLY RENT, 4-ROOM FLAT, CITY LOCATION, IN EURO
3. 500
3. 000
2. 500
2. 000
1. 500
1. 000
500
0
Source: www.numbeo.com Data from 23 August 2018

2018 | 2019
FORECASTS AT A GLANCE
Inhabitants Inhabitants GDP Per capita GDP Disposable income per Unemployment rate
Structural data 2017
in '000 2007-2017 (%) EUR m EUR capita in EUR p.a. (%; July 2018)
Berlin 3,591 11.2 118 32,976 20,195 8.1
Cologne 1,085 9.9 59 54,581 22,328 7.8
Dusseldorf 614 6.8 46 74,963 26,292 6.7
Frankfurt 739 15.4 63 85,861 22,799 5.4
Hamburg 1,817 8.1 105 57,803 25,012 6.3
Munich 1,465 13.6 102 69,428 28,995 3.6
Stuttgart 633 10.4 49 77,817 25,784 4.1
Top locations 9,944 10.8 543 54,618 23,530 6.5
Retail space Prime rents Prime rents Retail sales

Retail space
2017 EUR per sqm yoy % change yoy % change
in 2007- Per inhab-
1.000 2017 itant 2017 2018e 2019e 2017 2018e 2019e 2017 2018e 2019e
sqm in % in sqm
Berlin 6,490 19.7 1.8 310 310 310 0.0 0.0 0.0 3.0 2.7 2.8
Cologne 1,409 5.8 1.3 255 255 255 2.0 0.0 0.0 3.3 3.1 3.3
Dusseldorf 1,255 37.9 2.0 280 280 280 1.8 0.0 0.0 3.4 3.3 3.5
Frankfurt 1,556 27.0 2.1 300 300 300 0.0 0.0 0.0 3.5 2.9 3.1
Hamburg 2,994 16.9 1.6 285 285 285 0.0 0.0 0.0 4.1 3.6 3.7
Munich 2,109 24.6 1.4 345 345 345 0.0 0.0 0.0 4.0 3.5 3.6
Stuttgart 1,069 14.7 1.7 250 250 250 0.0 0.0 0.0 3.1 2.8 2.9
Top locations 16,881 20.0 1.7 298.4 298.4 298.4 0.3 0.0 0.0 3.5 3.1 3.3
Stock of office space Prime rents Prime rents Vacancy rate

Office space
2017 EUR per sqm yoy % change %
in Per Per office
'000 capita worker 2017 2018e 2019e 2017 2018e 2019e 2017 2018e 2019e
sqm in sqm in sqm
Berlin 18,949 5.3 32.9 30.0 32.7 34.0 7.1 9.0 4.0 2.2 1.8 2.0
Cologne 7,656 7.1 31.4 21.0 21.5 21.9 0.0 2.4 2.0 4.0 3.5 3.2
Dusseldorf 7,560 12.3 36.1 24.5 25.0 25.5 0.0 2.0 2.0 7.1 7.3 7.1
Frankfurt 10,164 13.8 34.8 38.5 39.5 40.5 8.5 2.6 2.5 9.3 8.3 7.8
Hamburg 13,706 7.5 31.7 26.5 27.0 27.5 1.9 1.9 1.9 4.5 3.8 3.5
Munich 13,747 9.4 32.5 36.0 37.0 38.0 3.7 2.8 2.7 2.0 1.7 1.5
Stuttgart 7,787 12.3 39.4 21.4 22.0 22.5 8.6 2.8 2.3 2.1 2.1 2.2
Top locations 79,569 8.0 33.5 29.3 30.5 31.3 4.7 4.1 2.8 4.1 3.7 3.5
Growth from Average initial rent Average initial rent Initial rent top location
Housing market
2012 to 2017 (%) EUR per sqm yoy % change EUR per sqm
Inhabit- House- Housing
2017 2018e 2019e 2017 2018e 2019e 2017 2018e 2019e
ants holds stock
Berlin 7.3 7.5 4.3 12.5 12.9 13.2 4.2 2.8 2.7 20.0 20.8 21.6
Cologne 6.5 7.5 0.2 12.5 13.0 13.5 4.2 4.0 3.8 18.0 18.0 18.5
Dusseldorf 4.0 4.5 1.0 12.8 13.2 13.5 1.6 3.1 2.3 18.0 18.5 19.0
Frankfurt 8.2 8.5 4.7 15.1 15.5 16.0 2.0 2.6 3.2 22.0 22.5 23.0
Hamburg 5.4 7.0 2.6 13.9 14.3 14.7 3.7 2.9 2.8 21.0 21.7 22.3
Munich 6.6 7.3 4.0 18.5 19.2 20.0 8.8 3.8 4.2 28.0 28.8 29.5
Stuttgart 6.6 6.9 1.6 14.5 15.4 16.0 11.5 6.2 3.9 19.5 20.5 21.3
Top locations 6.6 7.2 3.2 14.0 14.4 14.9 5.1 3.4 3.2 21.1 21.8 22.5
Note on the prime rents used for retail and office space: The prime rents adopted by BulwienGesa represent the mean of the three top three to five per cent of the
rentals in the market, which means that the prime rents given are not the same as the absolute top prime rent. For this reason, the higher rent figures shown for indi-
vidual locations, some of which are quoted in alternative market reports, are fundamentally not contradictory.
2018 | 2019
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Division, on behalf of and in cooperation with DZ HYP AG
Published by:
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operations or other business transactions from or with the companies that are the subject of the analysis contained in this document, and that (b)
analysts involved in the preparation of this document can generally be indirectly involved in the conclusion of such business transactions to the extent
permitted by supervisory law.
DZ BANK and its affiliated companies and their employees may have positions in securities of the analyzed companies or investment objects or effect
transactions with these securities or investment objects.
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preparation of this document and are subject to change without notice as a result of future events or developments. This document constitutes an inde-
pendent appraisal of the relevant issuer or investment objects by DZ BANK; all evaluations, opinions or explanations contained herein are those of the
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limited to information memoranda, sales or other prospectuses. This document can be no replacement for individual investment advice.
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DZ HYP OFFICES
Hamburg Head Office Münster Head Office
Rosenstrasse 2 Sentmaringer Weg 1

20095 Hamburg, Germany 48151 Münster, Germany
PO Box 10 14 46 Mailing address:
20009 Hamburg, Germany 48136 Münster, Germany
Phone +49 40 3334-0 Phone +49 251 4905-0
Regional Centres Regional Offices
Berlin Regional Centre Berlin Regional Centre Hanover Regional Office

Pariser Platz 3 Friedrichstrasse 60 Berliner Allee 5
10117 Berlin, Germany 10117 Berlin, Germany 30175 Hanover, Germany
Phone +49 30 31993-5101 Phone +49 30 220021-0 Phone +49 511 86643808
Dusseldorf Regional Centre Dusseldorf Regional Centre Heidelberg Regional Office

Steinstrasse 13 Ludwig-Erhard-Allee 20 Konrad-Adenauer-Strasse 87
40212 Dusseldorf, Germany 40227 Dusseldorf, Germany 69207 Sandhausen, Germany
Phone +49 211 220499-10 Phone +49 211 210942-0 Phone +49 6224 145151
Frankfurt Regional Centre Kassel Regional Office

CITY-HAUS I, Platz der Republik 6 Rudolf-Schwander-Strasse 1
60325 Frankfurt am Main, Germany 34117 Kassel, Germany
Phone +49 69 750676-21 Phone +49 561 602935-23
Hamburg Regional Centre Hamburg Regional Centre Leipzig Regional Office

Rosenstrasse 2 Valentinskamp 24 Schillerstrasse 3
20095 Hamburg, Germany 20354 Hamburg, Germany 04109 Leipzig, Germany
Phone +49 40 3334-3778 Phone +49 40 5544869-0 Phone +49 341 962822-92
Munich Regional Centre Munich Regional Centre Mannheim Regional Office

Türkenstrasse 16 Brienner Strasse 14 Augustaanlage 61
80333 Munich, Germany 80333 Munich, Germany 68165 Mannheim, Germany
Phone +49 89 512676-10 Phone +49 89 4523207-0 Phone +49 621 728727-20
Stuttgart Regional Centre Münster Regional Office

Heilbronner Strasse 41 Sentmaringer Weg 1
70191 Stuttgart, Germany 48151 Münster, Germany
Phone +49 711 120938-0 Phone +49 251 4905-7314
Nuremberg Regional Office

Institutional Clients Am Tullnaupark 4
90402 Nuremberg, Germany
Rosenstrasse 2 Phone +49 911 94009816
20095 Hamburg, Germany
Phone +49 40 3334-2159 Schwäbisch Gmünd Regional Office
Maiglöckchenweg 12
73527 Schwäbisch Gmünd, Germany
Phone +49 7171 8077230
DZ HYP AG
Rosenstrasse 2 Sentmaringer Weg 1

20095 Hamburg 48151 Münster
Germany Germany
Phone +49 40 3334-0 Phone +49 251 4905-0
As at = October 2018
dzhyp.de

DZ HYP Real Estate Market Germany 2018 Final

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Eine

06 Current economic climate in Germany

07 Coworking – A fad or a model for success?

The study presents a detailed discussion of the increasingly sought-after co-working

Source: BulwienGesa, DZ BANK Research forecast

Retail – rents stagnate after prolonged boom

» Retailers are reacting to the shift to online shopping by focusing on certain

FORECASTS FOR RETAIL PROPERTIES

Prime rents Change in prime rents

Source: BulwienGesa, Feri, DZ BANK Research forecast

Office – lower vacancy rate dramatically reduces supply of space

FORECASTS FOR OFFICE PROPERTIES

Prime rents Change in prime rents

Source: BulwienGesa, Feri, DZ BANK Research forecast

Residential – housebuilding picks up, but insufficient to meet housing needs

FORECASTS FOR RESIDENTIAL PROPERTIES

Average initial rents in EUR Average initial rents in % vs.

CURRENT ECONOMIC CLIMATE IN GERMANY

ECONOMIC FORECAST GERMANY

in % y-o-y 2016 2017 2018e 2019e

MACROECONOMIC GROWTH AND UNEMPLOYMENT TREND IN CONSUMER PRICES (HICP)

GDP yoy in % une mploymen t rate i n %

Source: DZ BANK Research HICP = Harmonised Index of Consumer Prices

COWORKING – A FAD OR A MODEL FOR SUCCESS?

20. 000 100 1. 800. 000 100

Source: Statistica / deskmag Source: Statistica / deskmag

FLEXIBLE WORKSPACE – DIFFERENT CONCEPTS

Business centres Coworking spaces Hybrid coworking

Community memberships and/or

Source: derived from Savills

HYBRID COWORKING OFFER BASED ON THE EXAMPLE OF WEWORK

Offer Costs Services provided Particularly suitable for

- Teleworkers and part-time

WILL RENTAL YIELDS ALSO PICK UP AGAIN WHEN INTEREST

Source: Ernst & Young Source: JLL, Colliers (Hotels)

201 0 201 1 201 2 201 3 201 4 201 5 201 6 201 7 201 8

Source: Datastream, OECD Source: Bureau of Labor Statistics, Eurostat

Top-7 Region al-12

Top-7 Region al-12

Source: BulwienGesa Source: BulwienGesa

Source: Bundesbank Source: GfK

visitor arrival s in mi ll ion , an n ual i sed (lh s)

Online shopping also impacting on top locations

reta il e -commerce sale s in EU R bn (l hs)

Retail: comparison of top locations

Source: Feri Source: BulwienGesa, German Tourism Association (2017)

2, 2 18. 000 4. 200

Source: Feri Source: Feri

Source: BulwienGesa, DZ BANK Research forecast Source: BulwienGesa

Source: BNP Real Estate Per: Q4/2017

Retail space in Berlin

Source: BulwienGesa, Feri, DZ BANK Research forecasts Source: Feri

RETAIL SPACE IN BERLIN

2016 2017 2019e 2019e

Source: Feri, BulwienGesa, DZ BANK Research forecasts

Retail space in Cologne

Source: BulwienGesa, Feri, DZ BANK Research forecasts Source: Feri

RETAIL SPACE IN COLOGNE

2016 2017 2018e 2019e

Source: Feri, BulwienGesa, DZ BANK Research forecasts

Retail space in Dusseldorf

Source: BulwienGesa, Feri, DZ BANK Research forecasts Source: Feri

RETAIL SPACE IN DUSSELDORF

2016 2017 2018e 2019e

Source: Feri, BulwienGesa, DZ BANK Research forecasts

Retail space in Frankfurt

Source: BulwienGesa, Feri, DZ BANK Research forecasts Source: Feri